Does a debt discharge that results from the modification of a mortgage loan guaranteed by a mortgage over a secondary residence qualify as exempt income?

Pursuant to the Puerto Rico Internal Revenue Code, a debt discharge resulting from the modification of a mortgage loan guaranteed by a mortgage on a secondary residence will not be considered taxable income as long as the original loan amount did not exceed $1,000,000. However, for a residence to qualify as a secondary residence, you must comply with certain use conditions and, in addition, having selected it as your secondary residence for tax purposes.

For this reason, in order to determine whether or not the discharged amount reported in Form 480.6A by the Bank may be excluded as taxable income based on the qualified residence exemption, you should consult this matter with your tax consultant or directly with the Puerto Rico Department of Treasury.

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