Today TaxMama hears from Janet in the TaxQuips Forum with a quick question. “We have applied for a loan modification on our home. Will that have any affect when we file taxes next year? I’d ask the loan counselor, but they are impossible to reach.”
If the loan modification only changes your interest rate, you won’t have any tax issues.
However, if it reduces your loan balance, you may have cancellation of debt income for the amount of the loan you will never have to pay.
There might be some ways around the taxes, if that happens. It’s something that comes up all the time here. So just search this forum and the TaxMama.com site for ‘cancellation of debt’ and you’ll find ways to avoid the tax.
And remember, you can find answers to all kinds of questions about loan modifications and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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