subject: How Does A Loan Modification Impact Taxes? [print this page] When you can no longer afford to make your mortgage payment because of changes to your income or the interest rate on your loan, a loan modification is one option that could provide some relief. With a loan modification you can essentially change the original terms of your agreement so that you can afford your mortgage payment again. While using a modification can provide some long-term relief, you have to consider the potential tax consequences of engaging in this activity. In many cases, hiring a loan modification attorney can be beneficial because of the knowledge and guidance they can provide.
A loan modification attorney will be able to sit down with you and look at your situation to determine if you will face any unnecessary tax burdens. When debt is forgiven by a creditor, you typically have to count that forgiven amount towards your income for the year and pay taxes on it. However, when you are reducing the debt on your primary place of residence, the IRS does not require you to account is toward your income.
If you have a loan on a rental or secondary home modified, then the amount that is forgiven will count towards your annual income. In that case, you'll have to pay taxes on your total income at the appropriate marginal tax rate for your situation.
A loan modification attorney can also look at your unique situation to determine if there are any tax breaks that you can take advantage of. For example, you may be able to qualify for a deduction based on points that you paid as part of the closing costs for your loan but never claimed as a deduction. You can also get deductions for things like mortgage insurance premiums. Taking all of these potential deductions into consideration is important so that you can minimize the amount of money that you have to pay to the IRS after a loan modification.
In addition to looking at your tax situation, an attorney can facilitate the negotiation of the modification itself. When you need to modify your mortgage, you'll have to deal with your mortgage lender. The terms that are changed in a modification are negotiable and the attorney will be able to come up with fair terms. Otherwise, you may be at the mercy of the mortgage lender when negotiating the terms of the modification. The attorney will be able to present you when talking to the mortgage lender so that you do not have to engage in any kind of negotiations.
Once the terms for the modification are agreed upon, you can then look at your finances with the attorney and see if there are any areas for concern in regards to your tax burden. If you're on track to owe more money in taxes as a result of the modification, you may be able to take some other steps to offset this extra tax debt. Planning carefully with an attorney can pay big dividends when it comes time to file your taxes.
by: Alvin Clark
welcome to Insurances.net (https://www.insurances.net)
