Help in Time of Need: IRS Mortgage Debt Relief
While it seems as though the government does not often give breaks when it comes to paying taxes, there has been some tax debt relief that the legislature has passed to help people living in the struggling economy today. The IRS mortgage debt relief was designed by Congress to help homeowners who had gotten into trouble with their home loans and had to receive some sort of help from their mortgage company in the form of forgiveness or refinancing at a lower rate.
Formerly, when a homeowner had to receive help such as this, the amount of money that was forgiven or the amount that was gained through refinancing was perceived by the government as an extra income on the part of the individual. Therefore, the amount was counted as such on the income tax return which often put the individual in a higher tax bracket which meant he had to pay more taxes. This put the individual who was already having financial difficulty further behind financially, so the government decided to take action to help this type of individual in the faltering economy and provide IRS mortgage debt relief.
How It Helps
The IRS mortgage debt relief helps the individual at tax time so that the money they was forgiven or gained through refinancing the home does not count as income in general. The money does have to be reported to the government on the Form 982, but it does not count to move the person to a different tax bracket. One big exception to this is if the forgiveness was in relation to a second home or a second mortgage, meaning these would still count as extra income that year.
Although the act passed in 2007, the IRS mortgage debt relief is still good for the years 2008 and 2009. At the rate the economy is still declining, with more people without jobs and the mortgage companies still faltering, it is possible that the act will need to be revisited and extended to continue to help people in need get back on their feet again. It is important for individuals who do their own tax returns to be aware of this legislation so that they can receive the tax break. Most software that is used for tax returns contains the Form 982, but some may not be as clear as others as to how the form should be applied and who can benefit from the tax break.
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