Discussion:Mortgage Forgiveness Act expiration

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Discussion Forum Index --> Basic Tax Questions --> Mortgage Forgiveness Act expiration

Discussion Forum Index --> Tax Questions --> Mortgage Forgiveness Act expiration

Jossiecpa (talk|edits) said:

25 August 2012
I have a client that is just now starting the deed in lieu process with his bank. He has been told this process could take several months to complete. If this does not become finalized until 2013, does he lose the exemption for cancellation of debt income on the amount of debt that the bank is forgiving as a result of this deed in lieu (assuming Congress does not pass an extension)? Or, because the process was initiated in 2012, will he still be eligible? I told him it all depends on whether or not the bank issues him a 1099-C for the difference, and what year they issue that to him. If it's issued as a 2013 1099-C, if the bank even issues that to him, then I don't see how he could avoid a taxable transaction, since this law will have expired. I don't have a whole lot of experience in this, so I just want to make sure that I'm passing along the correct information to him.

DaveFogel (talk|edits) said:

25 August 2012
First, there have been at least six bills introduced in Congress to extend the effective date of the Qualified Principal Residence Indebtedness (QPRI) exclusion of IRC ยงยง108(a)(1)(E) and 108(h) beyond the end of 2012 (H.R. 4202, H.R. 4250, H.R. 4290, H.R. 4336, S. 2144, S 2250). So, it's likely that an extension will be passed.

Second, the exclusion applies to the year in which the debt was canceled, not to the year in which "the process was initiated."

Third, other exclusions, such as the insolvency exclusion, do not have expiration dates, so they might be available if the client qualifies.

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