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Default The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

http://www.irs.gov/individuals/artic...179414,00.html

If you owe a debt to someone else and they cancel or forgive that
debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to
exclude income from the discharge of debt on their principal
residence. Debt reduced through mortgage restructuring, as well as
mortgage debt forgiven in connection with a foreclosure, qualifies for
the relief.

This provision applies to debt forgiven in calendar years 2007 through
2012. Up to $2 million of forgiven debt is eligible for this exclusion
($1 million if married filing separately). The exclusion does not
apply if the discharge is due to services performed for the lender or
any other reason not directly related to a decline in the home’s value
or the taxpayer’s financial condition.

More information, including detailed examples can be found in
Publication 4681, Canceled Debts, Foreclosures, Repossessions, and
Abandonments. Also see IRS news release IR-2008-17.

The following are the most commonly asked questions and answers about
The Mortgage Forgiveness Debt Relief Act and debt cancellation:

What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later
cancels or forgives the debt, you may have to include the cancelled
amount in income for tax purposes, depending on the circumstances.
When you borrowed the money you were not required to include the loan
proceeds in income because you had an obligation to repay the lender.
When that obligation is subsequently forgiven, the amount you received
as loan proceeds is normally reportable as income because you no
longer have an obligation to repay the lender. The lender is usually
required to report the amount of the canceled debt to you and the IRS
on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on
the loan after paying back $2,000. If the lender is unable to collect
the remaining debt from you, there is a cancellation of debt of
$8,000, which generally is taxable income to you.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when
cancellation of debt income is not taxable involve:

* Qualified principal residence indebtedness: This is the
exception created by the Mortgage Debt Relief Act of 2007 and applies
to most homeowners.
* Bankruptcy: Debts discharged through bankruptcy are not
considered taxable income.
* 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.
* Certain farm debts: If you incurred the debt directly in
operation of a farm, more than half your income from the prior three
years was from farming, and the loan was owed to a person or agency
regularly engaged in lending, your cancelled debt is generally not
considered taxable income.
* Non-recourse loans: A non-recourse loan is a loan for which the
lender’s only remedy in case of default is to repossess the property
being financed or used as collateral. That is, the lender cannot
pursue you personally in case of default. Forgiveness of a non-
recourse loan resulting from a foreclosure does not result in
cancellation of debt income. However, it may result in other tax
consequences.

These exceptions are discussed in detail in Publication 4681.

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on
December 20, 2007 (see News Release IR-2008-17). Generally, the Act
allows exclusion of income realized as a result of modification of the
terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be
included as income on your tax return and is taxable. But the Mortgage
Forgiveness Debt Relief Act allows you to exclude certain cancelled
debt on your principal residence from income. Debt reduced through
mortgage restructuring, as well as mortgage debt forgiven in
connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or
cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy,
build or substantially improve your principal residence, or to
refinance debt incurred for those purposes. In addition, the debt must
be secured by the home. This is known as qualified principal residence
indebtedness. The maximum amount you can treat as qualified principal
residence indebtedness is $2 million or $1 million if married filing
separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred
to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but
only to the extent that the principal balance of the old mortgage,
immediately before the refinancing, would have qualified. For more
information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in
calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal
residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence
indebtedness is $2 million ($1 million if married filing separately
for the tax year), at the time the loan was forgiven. If the balance
was greater, see the instructions to Form 982 and the detailed example
in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it
on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this
form must be attached to your tax return.

Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Adjustment), is used for other purposes
in addition to reporting the exclusion of forgiveness of qualified
principal residence indebtedness. If you are using the form only to
report the exclusion of forgiveness of qualified principal residence
indebtedness as the result of foreclosure on your principal residence,
you only need to complete lines 1e and 2. If you kept ownership of
your home and modification of the terms of your mortgage resulted in
the forgiveness of qualified principal residence indebtedness,
complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?
If you use a computer to fill out your return, check your tax-
preparation software. You can also download the form at IRS.gov, or
call 1-800-829-3676. If you call to order, please allow 7-10 days for
delivery.

How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by
February 2, 2009. The amount of debt forgiven or cancelled will be
shown in box 2. If this debt is all qualified principal residence
indebtedness, the amount shown in box 2 will generally be the amount
that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car
loans?
Not under this provision. Only cancelled debt used to buy, build or
improve your principal residence or refinance debt incurred for those
purposes qualifies for this exclusion. See Publication 4681 for
further details.

If part of the forgiven debt doesn't qualify for exclusion from income
under this provision, is it possible that it may qualify for exclusion
under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion.
Normally, you are not required to include forgiven debts in income to
the extent that you are insolvent. You are insolvent when your total
liabilities exceed your total assets. The forgiven debt may also
qualify for exclusion if the debt was discharged in a Title 11
bankruptcy proceeding or if the debt is qualified farm indebtedness or
qualified real property business indebtedness. If you believe you
qualify for any of these exceptions, see the instructions for Form
982. Publication 4681 discusses each of these exceptions and includes
examples.

I lost money on the foreclosure of my home. Can I claim a loss on my
tax return?
No. Losses from the sale or foreclosure of personal property are not
deductible.

If I sold my home at a loss and the remaining loan is forgiven, does
this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied
and a lender cancels the unsatisfied debt, you have cancellation of
indebtedness income. If the amount forgiven or canceled is $600 or
more, the lender must generally issue Form 1099-C, Cancellation of
Debt, showing the amount of debt canceled. However, you may be able to
exclude part or all of this income if the debt was qualified principal
residence indebtedness, you were insolvent immediately before the
discharge, or if the debt was canceled in a title 11 bankruptcy case.
An exclusion is also available for the cancellation of certain
nonbusiness debts of a qualified individual as a result of a disaster
in a Midwestern disaster area. See Form 982 for details.

If the remaining balance owed on my mortgage loan that I was
personally liable for was canceled after my foreclosure, may I still
exclude the canceled debt from income under the qualified principal
residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence
indebtedness. See Example 2 on page 13 of Publication 4681, Canceled
Debts, Foreclosures, Repossessions, and Abandonments.

Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt,
when they cancel any debt of $600 or more. The amount cancelled will
be in box 2 of the form.

What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender
issue a corrected Form 1099-C.

How do I report the forgiveness of debt that is excluded from gross
income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of
Tax Attributes Due to Discharge of Indebtedness (and Section 1082
Basis Adjustment) to indicate the type of discharge of indebtedness
and enter the amount of the discharged debt excluded from gross income
on line 2. Any remaining canceled debt must be included as income on
your tax return.

(2) File Form 982 with your tax return.

My student loan was cancelled; will this result in taxable income?
In some cases, yes. Your student loan cancellation will not result in
taxable income if you agreed to a loan provision requiring you to work
in a certain profession for a specified period of time, and you
fulfilled this obligation.

Are there other conditions I should know about to exclude the
cancellation of student debt?
Yes, your student loan must have been made by:

(a) the federal government, or a state or local government or
subdivision;

(b) a tax-exempt public benefit corporation which has control of a
state, county or municipal hospital where the employees are considered
public employees; or

(c) a school which has a program to encourage students to work in
underserved occupations or areas, and has an agreement with one of the
above to fund the program, under the direction of a governmental unit
or a charitable or educational organization.

Can I exclude cancellation of credit card debt?
In some cases, yes. Nonbusiness credit card debt cancellation can be
excluded from income if the cancellation occurred in a title 11
bankruptcy case, or to the extent you were insolvent just before the
cancellation. See the examples in Publication 4681.

How do I know if I was insolvent?
You are insolvent when your total debts exceed the total fair market
value of all of your assets. Assets include everything you own, e.g.,
your car, house, condominium, furniture, life insurance policies,
stocks, other investments, or your pension and other retirement
accounts.

How should I report the information and items needed to prove
insolvency?
Use Form 982, Reduction of Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled
debt from income to the extent you were insolvent immediately before
the cancellation. You were insolvent to the extent that your
liabilities exceeded the fair market value of your assets immediately
before the cancellation.

To claim this exclusion, you must attach Form 982 to your federal
income tax return. Check box 1b on Form 982, and, on line 2, include
the smaller of the amount of the debt canceled or the amount by which
you were insolvent immediately prior to the cancellation. You must
also reduce your tax attributes in Part II of Form 982.

My car was repossessed and I received a 1099-C; can I exclude this
amount on my tax return?
Only if the cancellation happened in a title 11 bankruptcy case, or to
the extent you were insolvent just before the cancellation. See
Publication 4681 for examples.

Are there any publications I can read for more information?
Yes.
(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and
Abandonments (for Individuals) is new and addresses in a single
document the tax consequences of cancellation of debt issues.

(2) See the IRS news release IR-2008-17 with additional questions and
answers on IRS.gov.



Page Last Reviewed or Updated: May 19, 2009
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Default The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

http://www.bankrate.com/finance/debt...rlest_20100311

Snag a tax break on debt forgiveness
By Steve Bucci • Bankrate.com

Steve Bucciq_v2.gifDear Debt Adviser,
I recently sold my home in New York in a short sale after 14 years. At
the time of the sale, the amount owed on the home was $390,500. We
sold the home for $187,917, which leaves $202,583 to be forgiven. How
much of this amount is taxable?
-- Darren

a_v2.gifDear Darren,
Your question reminds me of the Batman/Riddler stories in which the
Riddler gives clues to nefarious goings-on in the form of a riddle. I
can hear him asking, "If no good act goes unpunished, when is debt
forgiveness taxable?" This may sound like an IRS riddle, but its
answer can cost or save you thousands of dollars. Normally, if a debt
over $600 is forgiven by a creditor, the creditor will notify the IRS.
You will have to treat the forgiven debt as income that's fully
taxable even though you received no cash in the short sale
transaction.

However, because so many people were faced with potentially huge tax
liabilities through debt forgiveness as a result of unsupportable
mortgages, Congress passed an act that exempted a forgiven mortgage
loan from taxation for a limited time and under certain conditions.
Relief is available to you and many others who lost their homes to
foreclosure or a short sale, or who modified their mortgage loans for
less than was originally owed.

Aptly called The Mortgage Debt Relief Act of 2007, this law gives
persons with qualifying debt forgiveness in the years 2007 through
2012 a break on the income tax that would normally be owed on forgiven
debt. Generally, as long as the mortgage loan is for your primary
residence and the amount of debt forgiveness is no more than $2
million ($1 million if married, filing separately for the tax year),
it is a simple matter of filling out an additional form when you file
your taxes.

You already should have received a Form 1099-C from your lender that
lists the amount of debt forgiveness and fair market value of your
home. Using that information, you should fill out IRS Form 982, a
second debt forgiveness document, and send Form 1099-C and Form 982 in
with your tax return for 2009.

For my readers who are currently having trouble meeting their mortgage
payments, I encourage you to contact your lender sooner rather than
later. Banks are not real estate brokers and, for the most part, would
like to avoid the position of owning homes that have gone into
foreclosure. However, banks are dealing with record numbers of
distressed homeowners, so their desire to not own your home may not be
enough to get you a quick resolution. If you get bogged down in red
tape, I suggest you bring in a professional to help. You can find
great free help from HUD-certified counselors at Hope Now, an alliance
between counselors, mortgage loan companies, investors and others to
reach out to homeowners in distress.

Counselors for Hope Now can help homeowners stay in their homes, if
possible, or can come up with the best exit strategy if they need to
terminate their mortgage. The Homeowner's Hope Hotline is (888)
995-4673. For those of my readers who may not want to contact a live
person right off the bat, they can get some valuable free mortgage
help and information at Mortgage Relief Online, a Web site designed to
help consumers determine if they are eligible for mortgage loan
changes.

A word of caution to anyone seeking a mortgage modification. Be
careful! Scams are rampant in loan modifications. Unscrupulous
companies and individuals are taking advantage of consumers who are
worried about losing their homes. Below are some things to watch for
when seeking mortgage help:

* Fees required in advance.
* Guarantees that your foreclosure will be stopped.
* Requests that mortgage payments be made through a company other
than your lender.
* Pressure to sign documents.
* Unsolicited offers of help that ask for personal information
online or over the phone.

Good luck!

Bankrate's content, including the guidance of its advice-and-expert
columns and this Web site, is intended only to assist you with
financial decisions. The content is broad in scope and does not
consider your personal financial situation. Bankrate recommends that
you seek the advice of advisers who are fully aware of your individual
circumstances before making any final decisions or implementing any
financial strategy. Please remember that your use of this Web site is
governed by Bankrate's Terms of Use.

Read more Debt Adviser columns and more stories about debt management.
To ask a question of the Debt Adviser go to the "Ask the Experts" page
and select "Debt" as the topic.
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Default The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Ablang wrote:
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

http://www.irs.gov/individuals/artic...179414,00.html

If you owe a debt to someone else and they cancel or forgive that
debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to
exclude income from the discharge of debt on their principal
residence. Debt reduced through mortgage restructuring, as well as
mortgage debt forgiven in connection with a foreclosure, qualifies for
the relief.

This provision applies to debt forgiven in calendar years 2007 through
2012. Up to $2 million of forgiven debt is eligible for this exclusion
($1 million if married filing separately). The exclusion does not
apply if the discharge is due to services performed for the lender or
any other reason not directly related to a decline in the home?s value
or the taxpayer?s financial condition.

More information, including detailed examples can be found in
Publication 4681, Canceled Debts, Foreclosures, Repossessions, and
Abandonments. Also see IRS news release IR-2008-17.

The following are the most commonly asked questions and answers about
The Mortgage Forgiveness Debt Relief Act and debt cancellation:

What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later
cancels or forgives the debt, you may have to include the cancelled
amount in income for tax purposes, depending on the circumstances.
When you borrowed the money you were not required to include the loan
proceeds in income because you had an obligation to repay the lender.
When that obligation is subsequently forgiven, the amount you received
as loan proceeds is normally reportable as income because you no
longer have an obligation to repay the lender. The lender is usually
required to report the amount of the canceled debt to you and the IRS
on a Form 1099-C, Cancellation of Debt.

Here?s a very simplified example. You borrow $10,000 and default on
the loan after paying back $2,000. If the lender is unable to collect
the remaining debt from you, there is a cancellation of debt of
$8,000, which generally is taxable income to you.

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when
cancellation of debt income is not taxable involve:

* Qualified principal residence indebtedness: This is the
exception created by the Mortgage Debt Relief Act of 2007 and applies
to most homeowners.
* Bankruptcy: Debts discharged through bankruptcy are not
considered taxable income.
* 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.
* Certain farm debts: If you incurred the debt directly in
operation of a farm, more than half your income from the prior three
years was from farming, and the loan was owed to a person or agency
regularly engaged in lending, your cancelled debt is generally not
considered taxable income.
* Non-recourse loans: A non-recourse loan is a loan for which the
lender?s only remedy in case of default is to repossess the property
being financed or used as collateral. That is, the lender cannot
pursue you personally in case of default. Forgiveness of a non-
recourse loan resulting from a foreclosure does not result in
cancellation of debt income. However, it may result in other tax
consequences.

These exceptions are discussed in detail in Publication 4681.

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on
December 20, 2007 (see News Release IR-2008-17). Generally, the Act
allows exclusion of income realized as a result of modification of the
terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be
included as income on your tax return and is taxable. But the Mortgage
Forgiveness Debt Relief Act allows you to exclude certain cancelled
debt on your principal residence from income. Debt reduced through
mortgage restructuring, as well as mortgage debt forgiven in
connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or
cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy,
build or substantially improve your principal residence, or to
refinance debt incurred for those purposes. In addition, the debt must
be secured by the home. This is known as qualified principal residence
indebtedness. The maximum amount you can treat as qualified principal
residence indebtedness is $2 million or $1 million if married filing
separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred
to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but
only to the extent that the principal balance of the old mortgage,
immediately before the refinancing, would have qualified. For more
information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in
calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal
residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence
indebtedness is $2 million ($1 million if married filing separately
for the tax year), at the time the loan was forgiven. If the balance
was greater, see the instructions to Form 982 and the detailed example
in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it
on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this
form must be attached to your tax return.

Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Adjustment), is used for other purposes
in addition to reporting the exclusion of forgiveness of qualified
principal residence indebtedness. If you are using the form only to
report the exclusion of forgiveness of qualified principal residence
indebtedness as the result of foreclosure on your principal residence,
you only need to complete lines 1e and 2. If you kept ownership of
your home and modification of the terms of your mortgage resulted in
the forgiveness of qualified principal residence indebtedness,
complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?
If you use a computer to fill out your return, check your tax-
preparation software. You can also download the form at IRS.gov, or
call 1-800-829-3676. If you call to order, please allow 7-10 days for
delivery.

How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by
February 2, 2009. The amount of debt forgiven or cancelled will be
shown in box 2. If this debt is all qualified principal residence
indebtedness, the amount shown in box 2 will generally be the amount
that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car
loans?
Not under this provision. Only cancelled debt used to buy, build or
improve your principal residence or refinance debt incurred for those
purposes qualifies for this exclusion. See Publication 4681 for
further details.

If part of the forgiven debt doesn't qualify for exclusion from income
under this provision, is it possible that it may qualify for exclusion
under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion.
Normally, you are not required to include forgiven debts in income to
the extent that you are insolvent. You are insolvent when your total
liabilities exceed your total assets. The forgiven debt may also
qualify for exclusion if the debt was discharged in a Title 11
bankruptcy proceeding or if the debt is qualified farm indebtedness or
qualified real property business indebtedness. If you believe you
qualify for any of these exceptions, see the instructions for Form
982. Publication 4681 discusses each of these exceptions and includes
examples.

I lost money on the foreclosure of my home. Can I claim a loss on my
tax return?
No. Losses from the sale or foreclosure of personal property are not
deductible.

If I sold my home at a loss and the remaining loan is forgiven, does
this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied
and a lender cancels the unsatisfied debt, you have cancellation of
indebtedness income. If the amount forgiven or canceled is $600 or
more, the lender must generally issue Form 1099-C, Cancellation of
Debt, showing the amount of debt canceled. However, you may be able to
exclude part or all of this income if the debt was qualified principal
residence indebtedness, you were insolvent immediately before the
discharge, or if the debt was canceled in a title 11 bankruptcy case.
An exclusion is also available for the cancellation of certain
nonbusiness debts of a qualified individual as a result of a disaster
in a Midwestern disaster area. See Form 982 for details.

If the remaining balance owed on my mortgage loan that I was
personally liable for was canceled after my foreclosure, may I still
exclude the canceled debt from income under the qualified principal
residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence
indebtedness. See Example 2 on page 13 of Publication 4681, Canceled
Debts, Foreclosures, Repossessions, and Abandonments.

Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt,
when they cancel any debt of $600 or more. The amount cancelled will
be in box 2 of the form.

What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender
issue a corrected Form 1099-C.

How do I report the forgiveness of debt that is excluded from gross
income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of
Tax Attributes Due to Discharge of Indebtedness (and Section 1082
Basis Adjustment) to indicate the type of discharge of indebtedness
and enter the amount of the discharged debt excluded from gross income
on line 2. Any remaining canceled debt must be included as income on
your tax return.

(2) File Form 982 with your tax return.

My student loan was cancelled; will this result in taxable income?
In some cases, yes. Your student loan cancellation will not result in
taxable income if you agreed to a loan provision requiring you to work
in a certain profession for a specified period of time, and you
fulfilled this obligation.

Are there other conditions I should know about to exclude the
cancellation of student debt?
Yes, your student loan must have been made by:

(a) the federal government, or a state or local government or
subdivision;

(b) a tax-exempt public benefit corporation which has control of a
state, county or municipal hospital where the employees are considered
public employees; or

(c) a school which has a program to encourage students to work in
underserved occupations or areas, and has an agreement with one of the
above to fund the program, under the direction of a governmental unit
or a charitable or educational organization.

Can I exclude cancellation of credit card debt?
In some cases, yes. Nonbusiness credit card debt cancellation can be
excluded from income if the cancellation occurred in a title 11
bankruptcy case, or to the extent you were insolvent just before the
cancellation. See the examples in Publication 4681.

How do I know if I was insolvent?
You are insolvent when your total debts exceed the total fair market
value of all of your assets. Assets include everything you own, e.g.,
your car, house, condominium, furniture, life insurance policies,
stocks, other investments, or your pension and other retirement
accounts.

How should I report the information and items needed to prove
insolvency?
Use Form 982, Reduction of Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled
debt from income to the extent you were insolvent immediately before
the cancellation. You were insolvent to the extent that your
liabilities exceeded the fair market value of your assets immediately
before the cancellation.

To claim this exclusion, you must attach Form 982 to your federal
income tax return. Check box 1b on Form 982, and, on line 2, include
the smaller of the amount of the debt canceled or the amount by which
you were insolvent immediately prior to the cancellation. You must
also reduce your tax attributes in Part II of Form 982.

My car was repossessed and I received a 1099-C; can I exclude this
amount on my tax return?
Only if the cancellation happened in a title 11 bankruptcy case, or to
the extent you were insolvent just before the cancellation. See
Publication 4681 for examples.

Are there any publications I can read for more information?
Yes.
(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and
Abandonments (for Individuals) is new and addresses in a single
document the tax consequences of cancellation of debt issues.

(2) See the IRS news release IR-2008-17 with additional questions and
answers on IRS.gov.



Page Last Reviewed or Updated: May 19, 2009

The rest of us that are saddled with debt but are cutting corners on
everything to pay them need a break.
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Default The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

lil abner full-quoted:

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation


The rest of us that are saddled with debt but are cutting corners on
everything to pay them need a break.


Why did you quote 10 pages of material, only to add 2 lines to the end?

Don't you know how to properly construct usnet replies?
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