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Expiration date for home mortgage debt forgiveness rapidly approaching

Since 2007, homeowners have been allowed to exclude from their taxable
income up to $2 million in cancellation-of-debt (COD) income ($1 million for
married taxpayers filing separately) in connection with qualified principal
residence indebtedness (QPRI). The exclusion had been available only for debts
forgiven through 2012, but Congress extended it. Now that expiration date —
Dec. 31, 2013 — is rapidly approaching.

You can have COD income if a creditor forgives a debt, reduces the interest
rate or gives you more time to pay or in connection with a mortgage
foreclosure, including a short sale or deed in lieu of foreclosure. QPRI means
debt used to buy, construct or substantially improve your principal residence,
and it extends to the refinance of such debt. Relief isn’t available for a
second home, nor is it available for a home equity loan or cash-out refinancing
to the extent the proceeds are used for purposes other than home improvement.

If you’re considering a mortgage foreclosure or restructuring in relation to
your home, you may want to act before year end to take advantage of the COD
income exclusion in case it’s not extended again.

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