2007 Tax - What is the Mortgage Forgiveness Debt Relief Act of 2007?

By: Robert A. Johnson

With so many people finding themselves facing foreclosure the American government finally stepped in to help out a little. Although nothing could be done about saving the homes, there was The Mortgage Forgiveness Debt Relief Act of 2007 which was enacted on December 20, 2007.

What this means is that some or all of the debt that is left from a foreclosure can be forgiven for the 2007 tax return and the following two years. Before this act was passed, any debt that was left after the foreclosure of a home was basically considered taxable income and had to be claimed on that year’s income taxes.

This act only applied to debt that was obtained due to the purchase of a person principal residence or to improve the residence. The Mortgage Forgiveness Debt Relief Act of 2007 applies to the 2007 tax return along with the 2008 and the 2009 tax return. When people had to file 2007 taxes they still had to report the debt on their tax return. The form 982 has to be filed out and attached to the rest of your 2007 tax return.

Form 982 will have to be filed out for those who are filing for this relief on their 2008 and 2009 taxes. The form can be easily obtained by downloading it from IRS.gov. It is also good to know that as long as the loan amount that you are seeking help on was less then two million dollars it will be covered. If married couples are filing separately then it is one million dollars.

Just keep in mind that this form and this act cannot be used for second homes or rentals that a person had which were foreclosed on. There can be extensions on your 2007 tax return filed though in order to give extra time to pay the taxes on that debt since it is likely to be a good amount of money.

While this doesn’t solve the problem of not having a home any longer, it is at least a good amount of help to make sure those who lost their homes have an easier time moving on as they will not have to pay taxes on that debt.

Late 2007 tax return filers will face penalties

By: Robert A. Johnson

Chances are if you still have not filed your 2007 tax return, you are going to face some penalties. Even in a case where you have filed an extension you should be aware that you could still be assessed penalties on any taxes owed. The deadline each year is the same, April 15th, except when it falls on a weekend and in that case, the tax filing deadline will be the following business day.

Returns.

The tax code allows you three years to file a tax return if you either do not owe taxes or are due a refund. After three years, you forfeit all rights to any prior year tax refund money owed to you. On the other hand, if you owe the IRS they can go back as far as six years of prior tax returns and under special circumstances, with internal approval, even further.

Penalties

If you are to be penalized you will probably fall into one of these three categories.

1) You have filed your 2007 tax return on time but could not for whatever reason pay all of the tax you owed.- In this situation you will be charged a .5% penalty of the remaining tax due for each month that it goes without being paid. This can increase to 1% of the tax due if the tax remains unpaid after several attempts to collect. If you can show, justification for not paying, the penalty may be avoided.

2) You have a late tax return - If you go past the deadline and file a late tax return, when you owe tax, then you can be charged a late file penalty. Like the above, if you can show just cause, it may be avoided. However if not this is the stiffest of penalties at 5% of the tax you owe for each month it goes past due. This is a 4.5% late file penalty coupled with the .5% late fees. The longer this continues, the more it will cost you as the late fee continues to accrue and at five months, you can owe as much as 47.5%! (4.5% * 5 months + 25% late fee) An important side note: The minimum penalty once you pass the 60-day mark is the smaller of $100 or 100% of the tax owed.

3) You have filed an installment plan for your 2007 return - Even with an installment plan you will be assessed late fees. If you file your return on time and then filed an installment agreement, which the IRS accepted you would then be charged a .25% late fee for every month that you are past due; this is instead of the .5% on a typical late return.

4) No matter which of the above categories you may find yourself you will also have to pay interest on the federal taxes owed. This is generally the federal rate plus 3%. This interest is refigured every three months and compounds daily. The moral of this story is to file on time and pay as much as humanly possible if you owe any taxes. There are many ways to file your taxes each year, CPA, tax preparation companies and online. Be proactive, get your current returns in on time, and file any prior year’s tax returns as soon as you can. If you wait, too long the IRS can file a return for you based on the income information they have on file for you. When this happens, you can rest assured that the IRS will not give you any preferential filing status or deductions.