Are there tax consequences to doing a loan modification?
A. Not necessarily. Consult with a qualified accountant, especially in regards to The Mortgage Forgiveness Debt Relief Act of 2007 that was enacted on December 20, 2007. Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence. If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. This provision applies to debt forgiven in calendar years 2007 through 2012.
