Days before the end of the tax year, the massive tax bill changed the rules retroactively. And for once, the change benefited individual taxpayers.
The tax bill revived, for tax year 2017, the exclusion from income accorded to phantom income upon foreclosure, short sale, or loan modification.
The provision that created an exception protecting struggling homeowners from a tax hit for debt canceled upon foreclosure of their principal residence. It expired with tax year 2016.
So, for instance, if you got a loan modification in 2017 that reduced the principal on your home loan, that reduction was once again going to be treated as income, and subject to tax.
But Congress restored for one more year the qualified principal residence indebtedness exclusion. (That’s a mouthful).
The details are beyond me. NCLC reported the change here. Kenneth Harney of the WashingtonPost talked about the exclusion in the middle of his look at real estate and tax issues.
A Google search for the IRS publication on cancellation of debt tax issues seems to be wrong, now that the tax bill is law. It treats canceled mortgage debt as if the exclusion wasn’t available in 2017.
Confusion seems to be inevitable.
