This law exclude from income any debt forgiven or cancelled as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.
Usually, debt forgiven or cancelled by a lender must be included as income on your tax return as income. What the new law does for you? The new law allows you to exclude certain cancelled debt on your principal residence from income.
Do you need to report it on your ax return? Yes. As a general rule, must taxable and non taxable items are reportable events, and this one is reportable.
What about debt on a second home, credit card or car loans? Not contemplated under this provision. This provision applies to your principal residence. The law can be used for taxable years: 2007, 2008, and 2009.
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