Sometimes it can feel as though the government doesn't usually give out tax breaks; however, that is exactly what the government has done with some new legislature that was passed in 2007.
The IRS Mortgage Debt Relief Act was designed in order to help out the people who had fallen behind with their home loan and mortgage repayments and who were receiving help from their lenders either through the form of forgiveness, or from refinancing their debts onto a lower rate.
Before the IRS Mortgage Debt Relief Act, if an individual received help through forgiveness, or from refinancing, then the amount of money he saved would be classed as extra income by the government.
This extra income had to be reported on the individual's income tax return, and of course this would usually push that person up into a higher tax bracket, meaning that he would have to pay additional taxes.
The people who needed this help were already struggling with financial difficulty, so this additional tax effectively canceled out any help individuals were receiving in the first place, and actually made them worse off.
In order to counter this, the government decided that action needed to be taken, and thus created the IRS Mortgage Debt Relief Act.
Under the IRS Mortgage Debt Relief Act, any savings made through forgiveness or refinancing are no longer classed as income.
The money still has to be reported using Form 982, but it is no longer eligible to be taxed, and thus people no longer find themselves facing larger tax bills.
However, there is an exception to this.
If the savings came from forgiveness on a second home, or a second mortgage, then the amount saved does still count as additional income.
Even though the IRS Mortgage Debt Relief Act was passed in 2007, it also covered the 2008 tax year, and will cover the 2009 tax year too.
With the current state of the economy, with more and more people facing unemployment and financial turmoil, many people are expecting the act to be extended, in order to help more people get back onto their feet in these difficult times.
It is important for people to be aware of the IRS Mortgage Debt Relief Act so that they do not miss out on this tax break.
Most of the software packages used to calculate taxes include an electronic version of Form 982, but there are some older versions out there which do not include this form, so make sure to check your software so you don't miss out!