Taxes on my mortgage deal??

here's the mortgage deal I'm being offered -- we owe 250,000 current interest rate is 6.75% 28 more years to go scheduled interest rate should be 8.75%, effective this month the deal being offered -- 5.25% interest for 5 years, after which it returns to the scheduled (ARM) rate. effect on... show more here's the mortgage deal I'm being offered --

we owe 250,000
current interest rate is 6.75%
28 more years to go

scheduled interest rate should be 8.75%, effective this month

the deal being offered -- 5.25% interest for 5 years, after which it returns to the scheduled (ARM) rate.

effect on payment:
a) at 8.75% payment is
b) at 5.25% payment is

difference of 3.5% or 8750/yr [if it was interest only]

Data: I'm not paying anything for this deal. Obviously, my mortgage interest deduction will be about 8750 per year lower on my taxes [yes, we itemize -- if AMT doesn't get us]

Question: is the 43750 I'll save by agreeing to this taxable income to me? If so, when do I have to report it and pay the tax?? [it's almost enough all by itself to push us into the AMT if I have to report it all in one year.]

thanks for the help, guys

[citations to IRS rules and forms very helpful]
Update: ya, it is a loan mod
5 answers 5