| Generally, relief of indebtedness is income. That is if a | | | | President Bush and Congress sought to give |
| creditor forgives a debt, that forgiveness of debt is | | | | homeowners relief and President Bush signed into law |
| income to the debtor. However, due to changes in the | | | | an exclusion from gross income for the discharge of |
| law, those income consequences may not apply to | | | | qualified principal residence indebtedness. Now, in 2009, |
| homeowners. | | | | the Emergency Economic Stabilization Act of 2008, |
| In 2007, the law has changed with respect to relief of | | | | signed by President Obama, extended the exclusion |
| indebtedness related to your principal residence. Due to | | | | from gross income for the discharge of qualified |
| the economic downturn and loss in value in houses, | | | | principal residence indebtedness by an additional three |
| many homeowners were facing the "double trouble" | | | | (3) years. The exclusion now applies to debt |
| of a foreclosure (or giving their house back to the | | | | discharged after 2006 and before 2013. |
| bank by a deed-in-lieu), followed by having income tax | | | | There are numerous changes to the tax laws for |
| consequences arising from relief of indebtedness. For | | | | 2009 for individuals, partnerships and corporations. The |
| example, if the mortgage is $240,000 but the house | | | | foregoing is an example of just one of those changes. |
| sells for $200,000 at foreclosure and the bank | | | | Consult your professional tax advisor, CPA or attorney |
| chooses not to pursue you for the "deficiency" (the | | | | for additional information and advice specific to your |
| $40,000), you would then have $40,000 of income. | | | | particular facts and circumstances. When it comes to |
| That is "Double Trouble". | | | | the things you care about, leave nothing to chance. |