Tracy’s Tax Tips: Mortgage Debt

Did the economic crisis force you from your home last year? ?Uncle Sam may not add insult to injury.

FOX Business Network’s Tracy Byrnes has details in this “Tracy’s Tax Tip”:

The Mortgage Forgiveness Debt Relief Act survived the fiscal cliff and was given a one-year extension through 2013.

I’m Tracy Byrnes with the FOX Business Network, here with Tracy’s Tax Tips.

So that means if you sold your primary residence in a short sale or lost your home to foreclosure in 2012, and your lender cancelled or forgave your mortgage debt, you will not owe taxes on that amount, up to $2 million.

Now, to qualify, you must have used that loan to buy, build or substantially improve your principal residence. ?And if you do qualify, report the excluded debt on Form 982 – Reduction of Tax Attributes Due to Discharge of Indebtedness. ?Submit the completed form with your Federal income tax return.

Now, check your Form 1099-C for the cancelled debt amount – should be shown in Box 2 – and the value of your home shown in Box 7. ?Notify the lender immediately of any incorrect information so they can correct it. ?And check out the Interactive Tax Assistant tool on IRS.gov to check if your cancelled debt really is taxable.