I am trying to complete my income taxes and I had a foreclosure in 2008. The Lender was Countrywide. I never received any paperwork from Countrywide stating the debt was forgiven. Does Countrywide report a 1099-C and why haven’t I received a copy yet? Seeing as through Countrywide is the worse lender…. Does Countrywide even forgive the debt? The house is worth probably $50,000.00 and I owe then at least $125,000.00. That would mean I could be taxes on $75,000.00? Does the Mortgage Forgiveness Debt Relief Act 2007 discriminate against what type of loan, interest rate and income you had?
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
This is taken from the IRS publication
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
http://www.irs.gov/individuals/article/0,,id=179414,00.html
You need to consult your Tax Adviser for this because if you are insolvent then you may or maynot have to pay taxes. For example in Debt Settlement The debt forgiven may or may not be taxible depending on if you are insolvent.
The IRS considers $600 or more of forgiven debt as taxable income.[citation needed] The forgiving creditor must provide the taxpayer with a 1099-C tax form. This form will list the amount of forgiven debt and interest in Box 2. Taxpayers with portions of personal loans forgiven may not subtract the interest reported in Box 3 from the amount of reportable income on this form.
However, the IRS does not require taxpayers to report forgiven debt if the tax payer was insolvent at the time the creditor forgave the debt. Being insolvent means that the amount of a debtor’s debts are greater than his/her assets (how much money and property the debtor owns). However, the IRS adds that “you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent.”[8]
For example, if a taxpayer is $10,000 in debt and owns $3,000 in assets, he/she cannot exclude more than $7,000 of forgiven debt from his/her income tax. Any forgiven debt over $7,000 that year must be reported as taxable income.
on Jul 23rd, 2009 at 9:53 am
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
This is taken from the IRS publication
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
http://www.irs.gov/individuals/article/0,,id=179414,00.html
You need to consult your Tax Adviser for this because if you are insolvent then you may or maynot have to pay taxes. For example in Debt Settlement The debt forgiven may or may not be taxible depending on if you are insolvent.
The IRS considers $600 or more of forgiven debt as taxable income.[citation needed] The forgiving creditor must provide the taxpayer with a 1099-C tax form. This form will list the amount of forgiven debt and interest in Box 2. Taxpayers with portions of personal loans forgiven may not subtract the interest reported in Box 3 from the amount of reportable income on this form.
However, the IRS does not require taxpayers to report forgiven debt if the tax payer was insolvent at the time the creditor forgave the debt. Being insolvent means that the amount of a debtor’s debts are greater than his/her assets (how much money and property the debtor owns). However, the IRS adds that “you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent.”[8]
For example, if a taxpayer is $10,000 in debt and owns $3,000 in assets, he/she cannot exclude more than $7,000 of forgiven debt from his/her income tax. Any forgiven debt over $7,000 that year must be reported as taxable income.
References :
http://en.wikipedia.org/wiki/Debt_settlement
http://www.netdebt.com
http://www.irs.gov/individuals/article/0,,id=179414,00.html