I've read alot about the Mortgage Forgiveness Act but one thing is still unclear to me. I know the Act is extended to 12/31/2013 but is the debt forgiven in the year in which the contract between the lender and buyer is signed or is it forgiven on a yearly basis when the lender sends the 1099 because it's typical that the bank will defer the forgiveness in 3 installments, one in each year rather than one lump sum, so I'm not sure how this will play out tax wise.
Lender has sent the final loan modification docs to the buyer in June 2013 in which the buyer will notarize. In the letter, the bank said they will forgive the principal balance ($90k) in 3 yearly installments, each one ($30k) to occur on the anniversary date of when the trial payment began. My question in regards t
Real Estate Attorney
This is my understanding of the Forgiveness of Debt Act: 1. the property has to be your principal residence and 2. the forgiveness applies only to the amount forgiven in that calendar year. So, if you receive a modification with a forgiveness of $90,000 in calendar year 2013, you don't have to pay tax on that amount. However, if the $90,000 forgiveness is divided into 3 yearly installments, then you don't have to pay tax on $30,000 for 2013. If the Act is not renewed, you may have to pay tax on the additional $60,000 when forgiven.
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