Does anyone know if there are tax consequences with getting
a loan modification?
My lender agreed to reduce the unpaid principal amount and forgiving the deficiency. I also had help from the Hardest hit program in MI
I was reading this:
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
In my case I did file bankruptcy and included my mortgage and it was discharged.
My lender agreed to reduce the unpaid principal amount and forgiving the deficiency. I also had help from the Hardest hit program in MI
I was reading this:
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
In my case I did file bankruptcy and included my mortgage and it was discharged.
Being that I now agreed to a loan modification do you think it opens me up to having the pay taxes on the deficiency?
I am not exactly sure how that is going to work.
Answer :
No I don’t think so; you do not have to pay taxes on the
forgiven loan balance if that mortgage loan was for your primary residence. The
primary residence is a home where you live for the majority of the year. The
only exception to this rule is if the total amount forgiven exceeds $2 million.
Anything up to that point is tax-free. The rest is automatically taxable.
As you can see, a loan modification is the result of a negotiation between you, a borrower , and lender, typically over a large loan like a mortgage. Modifications help both sides compromise when the borrower cannot make the current monthly payments. This can save the borrower from foreclosure and credit damage, but the modification may also create tax complications; forgiven debt also affects taxes. Forgiven debt is the amount of money that the borrower would owe to the lender if the loan was unchanged. Sometimes loan modification results in debt settlement, in which the lender forgives a large amount of money. This money counts as income to the IRS and can create…Read more…
As you can see, a loan modification is the result of a negotiation between you, a borrower , and lender, typically over a large loan like a mortgage. Modifications help both sides compromise when the borrower cannot make the current monthly payments. This can save the borrower from foreclosure and credit damage, but the modification may also create tax complications; forgiven debt also affects taxes. Forgiven debt is the amount of money that the borrower would owe to the lender if the loan was unchanged. Sometimes loan modification results in debt settlement, in which the lender forgives a large amount of money. This money counts as income to the IRS and can create…Read more…
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