MORTGAGE FOREGIVENESS DEBT RELIEF ACT OF 2007 GIVES RELIEF FOR TAXPAYERS FACING FORECLOSURE AND ALSO HELPS SURVIVING SPOUSES WITH THE HOME SALE EXCLUSION -
The Mortgage Foregiveness Debt Relief Act of 2007 was "must pass" legislation for Congress to give taxpayers relief from loosing their principal residence in foreclosure. Believe it or not, the tax code previous to this legislation would have caused taxpayers that lost their homes through foreclosure to also suffer significant tax consequences. The legislation gives relief for foreclosure forgiveness of debt and mortgage workouts. This legislation only covers principal residence and acquisition costs. Consolidation of debt and cash outs are not covered.
A very imporatnt development was included in the legislation that affects surviving spouses. Recently widowed spouses extends the period of time during which a surviving spouse may use the joint return filers $500,000 home sale gain exclusion before being treated as a single individual entitled to a $250,000 exclusion. Previously, a surviving spouse was entitled to the $500,000 exclusion only to the extent he or she could file a joint return with the deceased spuse's estate, which only occurs for the tax year in which the spouse dies. Starting January 1, 2008 the sale of a residence that had been jointly owned and occupied by the surviving and deceased spouse is entitled to the $500,000 gain exclusion provided the sale occurs no later than two years after the date of death of the individuals spouse.