About the Mortgage Forgiveness Debt Relief Act of 2007
- The Mortgage Forgiveness Debt Relief Act was introduced to Congress on Sept. 25, 2007. The House passed it on Oct. 4 and the Senate on Dec.14 of the same year. Then-President George W. Bush signed the bill into law on Dec. 20, 2007. The act was created to amend the Internal Revenue Code of 1986. Provisions of the act provide relief on debt accrued during calendar years 2007 through 2012.
- The Mortgage Forgiveness Debt Relief Act provides financial relief by allowing homeowners to exclude discharged debt on principal residences from taxable income. Discharged debt is debt accumulated during a bankruptcy or home foreclosure. For instance, Jerome borrows $250,000 to buy a home. He pays back $50,000 of that amount but is unable to pay more. The bank that provided Jerome with the loan takes the home and forgives his $200,000 debt. This forgiven debt is called discharged debt. Before Congress enacted the Mortgage Forgiveness Debt Relief Act, discharged debt on homes was taxable.
Untaxed Discharged Debt Amount
- The act permits tax exemption on discharged debt accrued on a principal residence between 2007 and 2012 in amounts as much as $2 million. For couples who are married but filing separately, relief is provided in amounts as much as $1 million. Despite this amount being exempt from taxation, it must be reported to the IRS via Form 982. The term "discharged debt" as described by the provisions of the federal act applies to debt accumulated during a home foreclosure or as the result of altered mortgage terms.
- The act includes a number of amendments to IRS code related to debt relief though not directly connected to debt discharged on a principal residence. For instance, the act allows the exclusion of volunteer firefighter and emergency medical responder benefits from taxable income and clarifies conditions under which student housing is eligible for low-income housing credit. Other provisions address cooperative housing corporation qualifications and penalties for failure to file partnership returns.