The idea of paying tax on your debt relief may sound very unfair. However, you must look at it from the point of view of the tax authorities. You have borrowed money which you should have repaid. However, you secured a discount and effectively did not repay the money owed. This means that the debt has become an income of yours. If the total amount of discount offered by the lender exceeds six hundred dollars, you will have to pay tax at normal rates on any amount in excess of $600.

Is it possible to seek an exemption from this tax liability? Definitely. If you have received a settlement is a part of a bankruptcy proceeding, then you will enjoy a complete exemption. If you have become insolvent, you will enjoy exemption. If you qualify for relief under the discount mortgage relief Act, the amount that you have received as settlement will be waived and exempted.

When A Trial Isn't Really A Trial! Upon first hearing that they have "qualified" for a trial loan modification, struggling homeowners become elated. They are informed that they are well on their way to approval. Once all of the necessary paperwork is submitted and the affordable monthly payments made, they will be approved for a permanent modification allowing them to keep their home and make more reasonable payments for the remaining life of the loan. Little do they know that merely applying for the modification is the only qualification for trial modification approval. They have no idea that banks have created trial loan modifications for the sole purpose of collecting some money while borrowers navigate the loan mod process. That's right, after having millions of borrowers stop making payments, the banks put into place the trial modification payment program to induce people into making reduced payments and decreasing the amount of money the lenders were losing during the modification process. Making all the reduced payments is no guarantee of success whatsoever. Your lender still underwrites your modification the exact same way they always have. As disingenuous as it is, it's pretty smart when you think about it!

The new tax break would give home buyers a tax credit of 10 percent of the price of a primary residence purchased within a year, up to $15,000 to stabilize housing market and prevent foreclosures. A first time home buyer is defined as any individual who had no ownership interest in a principal residence during the three years prior to the house purchase. Rental property, vacation home or undeveloped land does not qualify you from claiming this credit. The credit must be repaid in installments over a 15 year period. Repayment would begin two years after the year in which the credit is claimed.

The Short Sale Solution. I know you want to keep your house. You wouldn't have applied for the loan modification if you didn't have a sincere interest in trying to remain in your home. Unfortunately, it may not be in the cards. Realistically, your lender isn't going to reduce the balance of your mortgage. With that in mind, even if you are approved for a loan modification, you are going have to agree to pay way too much for your house all over again. Why are you so ready to repeat the same mistake just because you may get more attractive financing? Wouldn't you be much better off selling your home for less than the loan balance, renting for a couple of years and buying something in the same neighborhood at a huge discount? With all of the new programs, including HAFA, designed to assist homeowners in getting their home sold for less than their loan balance, it doesn't make much sense for most homeowners to even attempt a loan modification, much less follow through! Do some research on short sales, find a certified specialist and get that giant mortgage monkey off your back!

Learn more about Obama Mortgage Relief Plan Qualifications.