Discussion:Cancellation of Debt & Insolvency

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Discussion Forum Index --> Advanced Tax Questions --> Cancellation of Debt & Insolvency


Discussion Forum Index --> Tax Questions --> Cancellation of Debt & Insolvency

Cak144 (talk|edits) said:

16 March 2008

When determining whether a taxpayer is insolvent (liabilities exceed assets) for purposes of whether cancellation of debt is taxable, are amounts in Roth IRA accounts included in assets? It is my understanding that amounts in retirement accounts (IRA's, 401k's, etc) cannot be attached by creditors in a bankruptcy, but are they included in assets in determining whether a taxpayer is insolvent?

RoyDaleOne (talk|edits) said:

16 March 2008
True.

Cak144 (talk|edits) said:

16 March 2008
If Roth IRA accounts are included in assets when determining insolvency for taxation of debt cancellation, is the amount included the amount after reduction for taxes and penalty that would be paid if an IRA withdrawal was made?

CalifCPA (talk|edits) said:

17 March 2008
No, it is computed based on the fair market value of the assets and the liaiblities immediately before the discharge.

COGS (talk|edits) said:

28 March 2011

This just seems to easy and makes me nervous. Client owes $200K more on his house than it is worth, has about $10K in retirement. All I do is check insolvency on the Form 982, put in the amount excluded of $72,000 Cancellation of debt and presto, no tax hit. The form instructions don't seem to indicate a schedule, personal finanical statements, etc.

COGS (talk|edits) said:

28 March 2011
Oh, it is Credit Card debt. Not mortgage relief.

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