News Archive: Ask the Professional - Are there any tax consequences if I renegotiate the terms, but not the amount of my mortgage?

For Immediate Release:
November 10, 2009

TOM COX, Tax Supervisor
tcox@rina.com • 925-210-2180
1220 Oakland Blvd., Suite 300
Walnut Creek, CA 94596 • www.rina.com

Q. Are there any tax conseguences if I renogotiate the terms, but not the amount of my mortgage?

A. There may be. Cancellation of Debt Income (CODI) occurs when a debt is discharged in whole or in part or there is a significant modification in the loan terms. The first scenario is simple; the lender forgives a portion of the loan resulting in the borrower having CODI. The second scenario isn’t so transparent This definition of a modification is extremely broad and is easily triggered. According to the IRS, there are three exceptions:

• If the modification of the terms comes about by the mere operation of the agreement (e.g. rate resetting)
• Borrower’s failure to perform
• A party’s failure to exercise an option Based on this, virtually any change in original loan terms or any non-performance with respect to the original terms of the loan will be considered a modifi cation. Whether the modifi cation is signifi cant will determine if it is taxable.