Still Time to Have Forgiven Mortgage Debt Excluded as Taxable Income

Homeowners who have had mortgage debt forgiven after a foreclosure, modification, or short sale may be able to exclude the canceled debt from their taxable income if they meet specific criteria.

According to Gil Charney, principal analyst at The Tax Institute at H&R Block, the specific criteria to have forgiven debt excluded are the debt must have been incurred to buy, build or substantially improve the residence, called “acquisition debt, and the property must be the taxpayer’s primary residence.

Also, the exclusion applies only to acquisition debt up to $2 million, or $1 million for married taxpayers filing separately, and canceled mortgage debt not used to buy, build, or improve a principal residence is not eligible for the exclusion, but may be excludable under a different provision, such as bankruptcy or insolvency, Charney added.

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http://www.dsnews.com/articles/index/still-time-to-have-forgiven-mortgage-debt-excluded-as-taxable-income-2012-04-02