Discussion:Income from forgiveness of debt

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Discussion Forum Index --> Tax Questions --> Income from forgiveness of debt

Intax@yahoo.com (talk|edits) said:

28 February 2006
Is income to be recognized from the forgiveness of debt of a second mortgage? What if that mortgage was for more than the value of the property?

WillyB (talk|edits) said:

28 February 2006
Yes, see Tufts v. Comm. and Crane v Comm. both SC cases.

of , I think 1983 and 1947, respectively.

Warren (talk|edits) said:

28 February 2006
Was there a foreclosure? The value of the property isn't really an issue unless there was a foreclosure. If they just forgave a mortgage and that's it, then it is income. If it was a bank they should send you a 1099 indicating the forfiveness amount.

Trtaxalmanac (talk|edits) said:

8 May 2006
What if the debt forgiveness was from a foreclosure? The bank issued my client a 1099 for the difference of the loan balance and the FMV of the property at the time of foreclosure (amounted to about $40,000). Should it all be included as income?

Taxref (talk|edits) said:

8 May 2006
Forgiveness of debt income is excluded to the extent that the client was insolvent. You will need to get a list of assets and liabilities from the client to see if this applies in his case.

Warren (talk|edits) said:

8 May 2006
The debt forgiveness income from foreclosure is the difference between the loan balance and the FMV of the property so the amount on the 1099 is probably the correct amount to report assuming the FMV used by the bank was correct.

Warren (talk|edits) said:

8 May 2006
It is also possible that there is gain above and beyond the forgiveness of debt amount. The amount of any additional gain would depend on his tax basis in the property. If this was a rental property that was depreciated or if there had been additional loans taken out against property above and beyond the purchase price, it is possible that there could be taxable gain more than $40K.

Ruthk500 (talk|edits) said:

30 January 2008
Is there any tax relief for a taxpayer who has a cancellation of debt thru foreclosure. The mortgage at time of repossesion was 83,000. FMV was 45,000 sold on a short sale. The cancellation debt is 57,000. The taxpayer was not in subprime mortgage, the house was not over-mortgaged. The neighborhood is still a 70,000 to 80,000 range. I want some how to get tax relief for this person. She will never be able to pay off IRS debt. She is in the 35,000 tax bracket


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