Congress often rushes to pass legislation just before adjourning for a holiday or recessing for the year, and 2007 was no exception. One of these last-minute bills was the "Mortgage Forgiveness Debt Relief Act of 2007," which President Bush signed into law on December 20.
The law includes three major tax breaks for homeowners:
- Under prior law, the forgiveness of mortgage debt by a lender generally resulted in taxable income to the taxpayer. The new law allows homeowners to exclude up to $2 million of certain forgiven mortgage debt from federal taxable income. The exclusion is available for 2007, 2008, and 2009 and applies to foreclosures and renegotiations of qualified mortgages on primary residences. The amount of debt forgiven reduces the tax basis in the home.
- The 2007 deduction allowed for qualifying mortgage insurance premiums is extended for three more years - 2008 through 2010.
- Under prior law a surviving spouse could use the full $500,000 gain exclusion on the sale of a principal residence only if he or she sold the home in the year a joint return could be filed. Now for sales after 2007, a surviving spouse who qualifies for the full exclusion may claim it for sales occurring within two years of the other spouse's death.
If you would like details on provisions that affect you, please call our office.
Steven C. Leibold, EA
San Diego Business Advisors