Know about the mortgage forgiveness debt relief act

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Mortgage Forgiveness Debt Relief Act can help the financially crippled homeowners during foreclosure procedure. According to the pre existing law, the borrower gets 1099 income tax form for the amount that has been forgiven by a lender during foreclosure or Short Sale.

The amount that has been forgiven by the lender is considered to be taxable income of the borrower. But a taxpayer is not required to pay the federal income tax on debt forgiven after the introduction of H.R.3648, the Mortgage Forgiveness Debt Relief Act. </span

An under reporter letter is mailed to the people who did not notify about the returns after the foreclosure. And this forgiven debt gets accumulated resulting in tax debt. But the rules have changed with the implementation of the Mortgage Forgiveness Debt Relief Act of 2007. The Congress is trying to help people to manage crisis. According to the new law, the taxes on the forgiven debt will be waived off for the duration of 3 years. Therefore, the H.R. 3648 postpones tax on forgiven debts from foreclosures. People who suffered the trauma of foreclosure can save considerable amount of money with the enforcement of this law. But remember if you are a victim of this crisis before the start of 2007 then this rule will not be applicable in your case. The law incorporates loan renegotiation plan and partial reduction of debt.

Financially strapped people should take the benefit of the Mortgage Forgiveness Debt Relief Act to avoid foreclosure. Generally, the forgiven debt is treated as taxable income therefore the government levies tax on it. There has been an alarming increase in the rate of foreclosure therefore the government has been lenient not to tax on cancellation of debts. If you opt for mortgage refinance, the cash out option will be determined on the basis of whether you can qualify for a Mortgage Forgiveness Debt Relief Act. You can consult a professional to verify whether you will qualify for the forgiveness act. Homeowners are seeking help from the government as there is a steady rise in the mortgage crisis, drop in prices of house, low resale of house.

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