Income and Investments Real Talk Series: Do I Have to Report a Home Foreclosure on My Taxes? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by TurboTaxLisa Published Sep 14, 2016 - [Updated Jul 19, 2019] 2 min read Q: Earlier this year, the bank foreclosed on my home. How do I report this on my taxes? A: Unfortunately financial crisis can happen in your life that can’t be avoided, but if you experienced a foreclosure, short sale, or loan modification, you may get some relief and be able to exclude the debt forgiven on your principal residence from your income. Prior to the Mortgage Forgiveness Debt Relief Act, taxpayers were required to include forgiven debt from foreclosure, short sale, or loan modification in their income at tax-time, but thanks to the extension of the Mortgage Forgiveness Debt Relief Act you are allowed to exclude the debt discharged on your principal residence from your taxable income up to $2 million ($1 million MFS). Here are some things you need to know in order for your forgiven home mortgage debt to be tax-free: Your forgiven debt must be debt secured by your primary residence. Amounts borrowed that were not used to remodel, acquire, or build your principal residence do not qualify. There is a $2 million ($1 million MFS) limit on the amount that qualifies for exclusion. The law applies to refinanced home loans as well. The law only applies to mortgage debt and not other debt forgiveness. The Mortgage Debt Relief Act was extended through December 31, 2016 and applies to discharges of qualified principal residence indebtedness before January 1, 2017. The extended provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, but a written agreement was entered into in 2016. Typically the Mortgage Forgiveness Debt Relief Act has been extended in the past. We don’t know when or if the provision will be extended again, but you can take comfort in knowing that if you have discharged qualified principal residence indebtedness this year you will be able to exclude it from your taxable income. If you receive a Form 1099-C from your lender to report the cancellation of mortgage debt, don’t worry. TurboTax will ask you simple questions about the cancellation of debt and enter the information on the correct forms based on your answers so you are not taxed on the forgiven debt on your home. Don’t forget to check back with the TurboTax blog to find out the latest updates on the Mortgage Forgiveness Debt Relief Act. Have a “Real Talk” question? E-mail us at realtalk@intuit.com and we may answer it on the TurboTax blog! Previous Post Early 401(k) Withdrawal Considerations for Early Cashing Out of Your… Next Post Ways to Save When Doing DIY Arts/Crafts Written by Lisa Greene-Lewis Lisa has over 20 years of experience in tax preparation. Her success is attributed to being able to interpret tax laws and help clients better understand them. She has held positions as a public auditor, controller, and operations manager. Lisa has appeared on the Steve Harvey Show, the Ellen Show, and major news broadcast to break down tax laws and help taxpayers understand what tax laws mean to them. For Lisa, getting timely and accurate information out to taxpayers to help them keep more of their money is paramount. More from Lisa Greene-Lewis Follow Lisa Greene-Lewis on Twitter. Leave a ReplyCancel reply Browse Related Articles Uncategorized What Is Deferred Compensation & How Is It Taxed? Investments How Does an Inherited IRA Work? Work Choosing Your Business Structure: 5 Types of Businesses… Tax Deductions and Credits Are HOA Fees Tax Deductible? What You Need to Know Crypto Understanding Crypto and Capital Gains Work 7 Things You Need to Know About the New Business Report… Work Using Form 8829 to Write-Off Business Use of Your Home Tax Tips Roth 403(b) vs. Roth IRA: Which Should You Invest In? Life Interest Rates, Inflation, and Your Taxes Investments Essential Tax Tips for Maximizing Investment Gains