Broken Arrow, OK -- (SBWIRE) -- 10/26/2011 -- Debt Relief ActMortgage Forgiveness Debt Relief Act (MFDRA), a mortgage default reprieve law that allows homeowner not to pay income tax, till 2009, thru the statute of Emergency Economic Stabilization Act, tax exemption is now up to 2012.

An already forgiven debt, normally in US Law, the forgiven amount is considered income, and therefore subject to tax. But with the signing of Mortgage Forgiveness Debt Relied Act (MDFRA) in 2007, if the homeowner or borrower qualifies, he or she is no longer liable to be taxed, up to 2009. To those homeowners striving to keep the property values from declining while interest rates are rising, the MFDRA is a wonderful blessing. And with the passage of another law in support of Mortgage Forgiveness Act, The Emergency Economic Stabilization Act extended this tax exemption up to 2012, the relief extension of which, allow 2 million exclusions limit from income tax.

The subprime mortgage crisis that hit the U.S. in 2008, expedite the passage of the Emergency Economic Stabilization Act on October 3, 2008, to save the U.S. government from grave financial meltdown. This Act would allow the US Treasury to buy back the defaulted mortgages, and put in more capital to the bank in the amount of US$ 700 billion.

The rationale behind this Debt Relief Act is to offer hope for people in search of government help related to mortgage default. Credit companies crashed in 2009 because of economic recession. As a result, homeowners could not pay their mortgage. To lessen that burden shouldered by debtors paying taxes out of the forgiven debt aside from other debts that they can’t pay because of economic downturn issues, the tax exclusion on mortgage debt, would enable the borrower to sell their houses lesser than they owe a bank. With tax liability gone, this encourages the borrower and the lender comes up with beneficial solution for both of them. The cooperation could yield lower payment and loans refinanced. Instead of having the property closed, it can be possible that homeowners retain its ownership.

The only drawback of this IRS Debt Relief Act is not all debt can be granted. There are conditions apply for debt to be eligible.

1. Debt cancelled prior to 2007 even for a day is not eligible. Debt cancellation covered years 2007 – 2012.

2. The maximum amount allowable for tax relief is 2 million dollars. If husband and wife apply under the Act, only one million each is granted.

3. Eligible debt, also called “acquisition indebtedness” is a debt used to acquire, build or renovate a residence. So long as the debt does not exceed the original amount of the debt, refinanced debt qualifies. Second mortgages or home equity debt qualifies if fund where used to improve home. Adequate records must be supplied under the current law.

4. Cash outs in the form of refinanced first mortgage, second mortgage, line of credit, home equity, under this arrangements no relief is available.

5. The debtor is eligible if debts were discharge because of bankruptcy.

Once the IRS Debt Relief Act has been granted to the debtor, the debtor must accomplish the IRS form 982 attach to tax return form. Lender will then accomplish the form 1099 and issue the debtor the debt amount forgiven eligible for exemption.

Financial problems incurred by lots of homeowners have been given other remedial option in solving the problem as provided by the Debt Relief Act. This can contribute, too, to the rebuilding of the nation’s economy. With the extension protected, more people will carry a lighter burden to go with their lives. For more information about the Debt Relief Act visit http://www.debtreliefact.org.