Cancellation

Cancellation: The act of the bank cancelling or forgiving a debt owed by the homeowner.

Cancellation: Cancellation means that a bank or lender has cancelled, or forgiven, the debt owed by the homeowner. Cancelled debt is not discharged debt, which must be authorized in bankruptcy court.

Debt Cancellation: Foregoing Mortgage Debt

Whenever the mortgage debt of a homeowner is forgiven, it is referred to as debt cancellation, which may be taxed as income if the debt is not discharged in a bankruptcy proceeding or the homeowner qualifies for one of the exclusions for relief from cancellation of debt (COD) income.

According to the IRS, “If the cancelled debt was a loan on your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.”

The law also states that if the bank cancelled part of the mortgage through a loan, the homeowner may be able to exclude that amount from their income. They may also be able to discount debt discharged as part of the Home Affordable Modification Program (HAMP). The exemption may also apply to the amount of debt cancelled in a foreclosure.

“The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify,” says IRS.gov.

Debt cancellation can be especially challenging at tax time, however homeowners should either seek legal counsel or look up current laws, as debt relief programs have been continually implemented throughout the years.

In 2017, Congress introduced a bill titled the “Mortgage Debt Tax Forgiveness Act of 2017” that would “amend the Internal Revenue Code of 1986 to make permanent the exclusion from gross income of discharge of qualified principal residence indebtedness.”

Cancellation

Cancellation: The act of the bank cancelling or forgiving a debt owed by the homeowner.

Cancellation: Cancellation means that a bank or lender has cancelled, or forgiven, the debt owed by the homeowner. Cancelled debt is not discharged debt, which must be authorized in bankruptcy court.

Debt Cancellation: Foregoing Mortgage Debt

Whenever the mortgage debt of a homeowner is forgiven, it is referred to as debt cancellation, which may be taxed as income if the debt is not discharged in a bankruptcy proceeding or the homeowner qualifies for one of the exclusions for relief from cancellation of debt (COD) income.

According to the IRS, “If the cancelled debt was a loan on your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.”

The law also states that if the bank cancelled part of the mortgage through a loan, the homeowner may be able to exclude that amount from their income. They may also be able to discount debt discharged as part of the Home Affordable Modification Program (HAMP). The exemption may also apply to the amount of debt cancelled in a foreclosure.

“The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify,” says IRS.gov.

Debt cancellation can be especially challenging at tax time, however homeowners should either seek legal counsel or look up current laws, as debt relief programs have been continually implemented throughout the years.

In 2017, Congress introduced a bill titled the “Mortgage Debt Tax Forgiveness Act of 2017” that would “amend the Internal Revenue Code of 1986 to make permanent the exclusion from gross income of discharge of qualified principal residence indebtedness.”

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