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Last Minute Tax Break For Distressed Homeowners

By Cathy Moran

tax break

 

Days before the end of the tax year, the massive tax bill changed the rules retroactively.  And for once, the change benefited individual taxpayers.

The tax bill revived, for tax year 2017, the exclusion from income accorded to phantom income upon foreclosure, short sale, or loan modification.

The provision that created an exception protecting struggling homeowners from a tax hit for debt canceled upon foreclosure of their principal residence. It expired with tax year 2016.

So, for instance, if you got a loan modification in 2017  that reduced the principal on your home loan, that reduction was once again going to be treated as income, and subject to tax.

But Congress restored for one more year the qualified principal residence indebtedness exclusion.  (That’s a mouthful).

The details are beyond me.  NCLC reported the change here.   Kenneth Harney of the WashingtonPost talked about the exclusion in the middle of his look at real estate and tax issues.

A Google search for the IRS publication on cancellation of debt tax issues seems to be wrong, now that the tax bill is law.  It treats canceled mortgage debt as if the exclusion wasn’t available in 2017.

Confusion seems to be inevitable.

 

 

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Filed Under: Featured, Taxes Tagged With: 2018, qualified principal residence debt

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

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About The Soapbox

You’ve arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said “try”).

Here, I allow myself to tell stories and express strong opinions. We dig deeper into how to consider bankruptcy and navigate a bankruptcy case.

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