forgiveness of debt in 2013

[Possi]

Welcome back! Let the madness begin!

I just got a call from a client who is asking the tax consequences of Forgiven Debt with regard to her residence. My CE was teaching that the The Mortgage Forgiveness Debt Relief Act and Debt Cancellation was NOT going to carry into 2013.

Will they pay tax on all that forgiven debt or was it eventually carried forward to 2013 with the late changes?

I looked at the IRS website and the latest I could find was from 2008: http://www.irs.gov/Individuals/The-M...t-Cancellation

They have mortgage of 258k with a HELOC for 173k.
They got an offer on the house of 350k that they could take, OR
they could do a DIL deed-in-lieu OR
they could file bancruptsy.

What would you say?

[David1980]

http://www.huffingtonpost.com/anna-cuevas/mortgage-debt-relief-act_b_2427431.html

[Gene V]

You can also look in the TheTaxBook update section dated 1-8-2013 page 21

Cancellation of Qualified Principal Residence Indebtedness
Exclusion (IRC §108)

In general, the cancellation of debt may result in ordinary income, income from the sale
of assets, or both. There are a number of exceptions to this rule, including cancellation of
debt due to bankruptcy, insolvency, qualified farm indebtedness, qualified real property
business indebtedness, and qualified principal residence indebtedness.
The exclusion for the cancellation of qualified principal residence indebtedness is limited
to $2 million of acquisition debt. Acquisition debt has the same meaning as acquisition
debt for purposes of the mortgage interest deduction rules except that the $1 million
debt limit is increased to $2 million for purposes of the exclusion rule. This exclusion was
scheduled to expire for tax years after 2012.

New Law: The new law extends this provision one year so that it applies for tax year 2013.
Unless extended again by Congress, the provision expires for debt cancelled after 2013.

[Possi]

Heloc

[QUOTE= Acquisition debt has the same meaning as acquisition
debt for purposes of the mortgage interest deduction rules except that the $1 million
debt limit is increased to $2 million for purposes of the exclusion rule. [/QUOTE]

As long as the HELOC interest qualifies as deductible, it would cover that debt, too, right? Is that what it is saying?

[appelman]

I think not.

Unless the HELOC funds were put into improvements of the property.

[Possi]

thanks

Thanks, that is what I thought.