News and Press Releases

Pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, signed by the President in December, taxpayers temporarily do not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence. Thus, for all debts discharged from January 1, 2007 to December 31, 2009, such as in short sales, as long as the debt in question is secured by a taxpayer’s principal residence and the debt was incurred in acquiring, constructing or substantially improving the residence the fact that the debt was forgiven will not result in any income tax liability to the taxpayer. This tax break also applies to a discharge of an obligation of a qualified principal residence indebtedness as long as the debt does not exceed $2,000,000 (or $1,000,000 for married individuals filing a separate tax return). In addition, for purposes of calculating capital gains, any debts discharged but excluded from income under this new law must be subtracted from the basis of the taxpayer’s principal residence (but not below zero) for purposes of calculating any capital gains tax.