The Mortgage Forgiveness Debt Relief Act Extended for 2017
This update is great news! The mortgage forgiveness debt exemption has been extended for the 2017 tax year.
What happened? On February 9, 2018, as part of the bill signed into law to end the 2nd government shut down of the year, this exemption was retroactively extended to include 2017. Not much publicity came along with this and, in fact, the IRS site has of yet (February 28, 2018) NOT been updated to include this extension information. This exemption can be used for your 2017 tax returns which you are filing now, in 2018.
What should you do?
You may have received a Form 1099-C Cancellation of Debt from your lender and it may or may not show it as Corrected.
Eligibility and terms of the law remain the same. If you think you qualify for this loan exemption and have already filed your returns, we can help you get this straightened out.
If you haven’t already made an appointment, you need to get this done as soon as possible. This issue just throws in more encouragement for hackers to work harder and faster on their fraudulent filing of tax returns.
As it currently stands, this exemption will not be available for the taxable year of 2018. But who knows what will happen?
The bottom line
If you’ve never consulted a CPA tax professional for individual and or business tax strategy, now is the year to do it. This is not the time to pit yourself against the IRS or ask someone who took the six-week tax course a serious question.
You don’t want to be explaining your version of the new 2017 tax laws to the IRS! Remember, when it comes to the IRS, you’re NOT right until proven wrong. It’s the other way around.
We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life, and we’re here for YOU.
This is how it was before February 9, 2018
Extend it once, then again…and again. Again?
This tax year could be full of year-end surprises and the New Year will undoubtedly usher in many changes. One expected year-end surprise may prove even more surprising if it doesn’t happen. The Mortgage Forgiveness Debt Relief Act (MFDRA) enacted in 2007 to extend relief for three years, applying to debts discharged in the calendar year 2007 through 2009, has been almost habit-forming in its three end-of-year extensions. This may not happen again.
What is the Mortgage Forgiveness Debt Relief Act?
Generally speaking, the IRS considers any debt or portion of a debt that is forgiven as income to the debtor. The lender reports this canceled debt, now income, to the debtor and the IRS using Form 1099-C, and the income is redeemed by the debtor on Form 982 when taxes are filed. This Act is one of three remedies provided by the tax law for excluding canceled mortgage debts from taxes.
What does the MFDRA actually do?
MFDRA provides specific exclusions for debtors whose homes have been sold short, or the mortgages foreclosed, or the home retained through restructured mortgages. When George W. Bush signed the Act in 2007, he provided tax relief for canceled mortgage debt of up to $2 million for the years 2007 (with subsequent extensions) through 2016. Criteria for this exclusion include:
- That the debt must be acquisition debt used to buy, build or substantially improve a principal residence, and
- The house must have been used as the main home, the principal place of residence for the debtor.
On December 18, 2015, President Obama signed a bill that extended this Act through December 31, 2016, and also retroactively covered mortgage debt canceled in 2015.
What could happen without an extension?
Since its enactment in 2007, MFDRA provided tax relief for homeowners who lost their house through foreclosure or short sales, or for those who restructured their mortgages with lower principal amounts. But it was never meant to last or be extended forever. As it stands now, beginning January 1, 2017, forgiven mortgage debt will be taxable again just like it was income. Gross income could actually be increased by the amount reported on Form 1099-C, and there would be no redeeming Form 982 to submit and exclude this previously forgiven debt as non-taxable.
Are there any exceptions?
As it stands, after 2016, people can still exclude the mortgage forgiveness debt from their taxes, providing the debtor and the lender entered into a binding written agreement to cancel the debt no later than December 31, 2016.
What’s the bottom line?
This tax year may hold some serious end-of-year surprises and certainly some substantial 2017 changes. Be prepared to rethink your tax planning and strategies for the short-term as well as long range. There’s still time to review, talk, and make adjustments to better prepare yourself and your business.
If you’re not sure whether your restructured mortgage, a short sale or foreclosure could be impacted by the failure of MFDRA to be extended by December 31, 2016, we definitely need to talk.
If you have any year-end tax questions, contact us. Things are changing. Let’s talk.