Tax-free discharge of mortgage debt

Tax-free discharge of mortgage debt

Did a bank discharge debt you owed for your principle residence?   Section 151 of the recently passed PATH Act has extended the ability of people to exclude gross income from the exclusion of this debt if certain conditions apply.  It’s been extended to include income that is reported as discharge of debt in either 2016 or 2017 as long as there was a written agreement to discharge the debt that was entered into in 2016.

Some of the conditions include……

-the maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately)

-you can only exclude indebtedness if it’s directly related to a decline in the value of your residence or to your financial condition

Possible other ways to exclude this indebtedness are insolvency and bankruptcy.

Linda Reinhardt

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