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Homeowners whose mortgage debt was forgiven during 2007 may be able to claim special tax relief by filling out a newly-revised Form 982 and attaching it to their 2007 federal income tax returns, per the IRS.

Usually, debt forgiveness results in taxable income but under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of the loan is less than $2 million.  The limit is one mission for a married person filing separate.

Due the late-December enactment, the reporting procedures for the law are not incorporated into tax preparation software or IRS forms, thus making it important for people using tax software to check with their provider for updates that include a revised Form 982.

The new law applies in 2007, 2008 and 2009 for forgiven debt.  Debt reduced through mortgage restructing, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for the relief.

The debt must have been used to buy, build or imporve the taxpayer’s principal residence.  Debt forgiven on 2nd homes, rentals, business property, credit cards or car loans do not qualify for the new-tax relief provision.  But in some cases, other kinds of tax relief, may be available.

The Internal Revenue Service (IRS) urges borrowers to check the Form 1099-C.  Notify the lender ASAP if the information is incorrect.  Borrowers should pay special attention to the amount of debt forgiven in Box 2 and the value listed in Box 7.