If a lender cancels part or all of a debt, a taxpayer must generally consider this as income. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt canceled in 2016.
Main Home. If the canceled debt was a loan on a taxpayer’s main home, they may be able to exclude the canceled amount from their income.
Loan Modification. If a taxpayer’s lender canceled or reduced part of their mortgage balance through a loan modification or ‘workout,’ the taxpayer may be able to exclude that amount from their income.
Refinanced Mortgage. The exclusion may apply to amounts canceled on a refinanced mortgage.
Other Canceled Debt. Other types of canceled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion.
Courtesy of IRS
For more information contact Neikirk, Mahoney and Smith at 502-896-2999.
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