How A Loan Modification May Affect Your Taxes
Modifying your mortgage has gotten a lot easier in recent months, and now the U.S. government is waiving some important taxes associated with the procedure - at least temporarily.
In the past, homeowners who were granted a loan modification were forced to pay high taxes on any loan amounts, interest and penalties that were forgiven by their lender. That left many strapped homeowners getting out of trouble with their mortgage lenders, only to find themselves in even more trouble with the IRS!
The good news is that the federal government has taken steps in recent months to ease this tax burden on those seeking mortgage help between 2007 and 2010. The problem is if you don't understand how this tax reprieve works, you could find yourself paying the IRS big bucks down the line.
One of the biggest problems with the new law is that it only affects federal taxes. Many states continue to collect income taxes on mortgage forgiveness amounts, leaving some taxpayers owing thousands in state taxes after a loan modification.
Another thing to consider: the timing of your mortgage modification. Considering the fact that it can take months for approval, those beginning the process in the next several months may find their modification approved after the tax reprieve deadlines, which would require them to once again pay federal taxes on the modified amounts.
It's a little-known tax rule that few people know or understand which is causing real financial distress according to Senate Finance Committee Chairman Max Baucus (D-Mont.). In a statement released by his office, Baucus said that, "Homeowners who are already in trouble on the mortgage certainly can't afford a big hit from the tax man too.
In response to the many questions being posed by the temporary tax reprieve, the Internal Revenue Service (IRS) has published a booklet, "Questions and Answers on Home Foreclosure and Debt Cancellation."
The following is a brief excerpt to provide a few answers to some of the most common questions you may have regarding this matter:
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the canceled amount as income on your tax return
2. 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:
€ Bankruptcy
€ Insolvency: If you are insolvent (your total debts outweigh your assets) when the debt is cancelled, some or all of the canceled debt may not be taxable
€ Non-recourse loans
Before agreeing to nay loan modification, be sure that you completely understand that tax ramifications it may cause. Otherwise, you may find yourself getting out from underneath one kind of debt, only to discover you have incurred another.
You don't need to hire an expensive firm to do your loan modification, on the contrary doing it yourself leads to better results and thousands of dollars saved. One such kit is 60 Minute loan modification. 60 Minute Loan Modification is very simple to follow and has helped multiple people stay in their house and avoid foreclosure.
In the past, homeowners who were granted a loan modification were forced to pay high taxes on any loan amounts, interest and penalties that were forgiven by their lender. That left many strapped homeowners getting out of trouble with their mortgage lenders, only to find themselves in even more trouble with the IRS!
The good news is that the federal government has taken steps in recent months to ease this tax burden on those seeking mortgage help between 2007 and 2010. The problem is if you don't understand how this tax reprieve works, you could find yourself paying the IRS big bucks down the line.
One of the biggest problems with the new law is that it only affects federal taxes. Many states continue to collect income taxes on mortgage forgiveness amounts, leaving some taxpayers owing thousands in state taxes after a loan modification.
Another thing to consider: the timing of your mortgage modification. Considering the fact that it can take months for approval, those beginning the process in the next several months may find their modification approved after the tax reprieve deadlines, which would require them to once again pay federal taxes on the modified amounts.
It's a little-known tax rule that few people know or understand which is causing real financial distress according to Senate Finance Committee Chairman Max Baucus (D-Mont.). In a statement released by his office, Baucus said that, "Homeowners who are already in trouble on the mortgage certainly can't afford a big hit from the tax man too.
In response to the many questions being posed by the temporary tax reprieve, the Internal Revenue Service (IRS) has published a booklet, "Questions and Answers on Home Foreclosure and Debt Cancellation."
The following is a brief excerpt to provide a few answers to some of the most common questions you may have regarding this matter:
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the canceled amount as income on your tax return
2. 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:
€ Bankruptcy
€ Insolvency: If you are insolvent (your total debts outweigh your assets) when the debt is cancelled, some or all of the canceled debt may not be taxable
€ Non-recourse loans
Before agreeing to nay loan modification, be sure that you completely understand that tax ramifications it may cause. Otherwise, you may find yourself getting out from underneath one kind of debt, only to discover you have incurred another.
You don't need to hire an expensive firm to do your loan modification, on the contrary doing it yourself leads to better results and thousands of dollars saved. One such kit is 60 Minute loan modification. 60 Minute Loan Modification is very simple to follow and has helped multiple people stay in their house and avoid foreclosure.
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