Reduced payoff and the mortgage is in good standing
We have a house mortgage with SLM (Fannie Mae). We have been getting letters from them stating that we are eligible for a reduced payoff if we refinance with another Mortgage Company.
Now mind you we are current and always been current (direct payment from our checking account).
First the letters were stating they will take $8,000.00 off. Now we are up to $16,000.00 off.
I have done some research. We will receive a 1099-C form and we will have to pay taxes on the payoff amount.
But, then I read that we can file an 982 form with our 1040 and it will forgive the money since it is for a Mortgage and not a Credit Card debt. Am I reading this correctly?
Also I was told it can ruin our Credit Score. We are in the very high 700,s. Can this ruin our credit?
I am going to ask our Tax Preparer about this too, just trying to get all the facts all around. I did go to another Mortgage Company about refinancing they never saw this before. So far we have no problem refinancing with them at this moment if we took the 1099-C offer or not.
Thank you so much for your time.
Wow, that’s quite an offer.
The key part here is if your assets are more than or less than your liabilities. See IRS Form 982 is Your Friend if You Got a 1099-C. If you direct your tax preparer to that article and publication it will help them to figure out if the forgiveness would be exempt under discharge of qualified principal residence indebtedness. The timing and dates are the key factors.
And while the latest IRS form says it is only for debt forgiven between 2006 and 2013, Congress did extend the tax relief program for forgiven debt in 2013. – Source
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