In 2016, my mortgage was restructured and $20,000 mortgage debt was kindly forgiven. In 2018, the IRS informed me that I owed them over $7,000 in additional taxes because the $20,000 of forgiven debt was considered income! I consulted with tax professionals, IRS employees and advocates for seniors. They all said that my best hope was to claim insolvency – demonstrate that the remaining mortgage plus my other debts were greater than the value of my one asset, my home.

After the IRS appropriated three years of tax refunds, put a lien on my home and started taking my Social Security payments, I finally decided I had to take action. Last summer, I was ready to pay appraisers $500 to determine my home’s 2016 value and try to figure out my 2016 total loan and credit card debt.

Luckily, a tax attorney told me about the Mortgage Forgiveness Debt Relief Act. Enacted in 2007, it stated that the government would not consider forgiven mortgage debt as taxable income (as long as the home was the taxpayer’s principal residence). It was originally going to be in effect until 2017. It’s been extended through 2025!

I filed my amended 2016 return last October with the all-important Form 982. The IRS hasn’t gotten to it yet. (Three months more, they say, fingers crossed.)

How many taxpayers has the IRS harassed in violation of this law? How many millions collected illegally? Why is the Mortgage Forgiveness Debt Relief Act such a big secret?

Linda Dumey
Wells

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