Home Foreclosure debt cancellation income exclusion
This entry was posted on 3/5/2008 2:59 PM and is filed under uncategorized.
From: The LA Times: "
Debt cancellation exclusion. Before last year, if you lost your house in foreclosure or were forced to sell it for less than the loan amount, you'd typically be subject to "debt cancellation income." The short version: The IRS assessed income tax on the money you didn't have to pay back.
Let's say you had a home with a $500,000 mortgage and a market value of $450,000. Before Congress passed a three-year exception to help people cope with the sub-prime crisis, if the lender took the home in foreclosure and you walked away owing nothing, the $50,000 difference was taxable income to you.
For 2007 through 2009, debt cancellation on your primary residence, whether as the result of a so-called "short sale" or a foreclosure, is not taxable. (Taxpayers are likely to get a 1099C showing the phantom income, however, so you must fill out a
Form 982 to exclude that income from tax, Perlman said.)"
Debt incomeMy advice here is to not automatically assume you have taxable income to report. Another aspect of the situation is that the Exclusion on the sale of your home can apply and cancel out the difference between what you paid for it (plus additions), and what it was worth when it was foreclosed upon.
At this next link, there is guidance on other ways to exclude canceled debt from income. Of note is the general rule that, "The cancellation takes place when you are insolvent... ...and the amount excluded is not more than the amount by which you are insolvent."
Canceled So, it would seem that
canceled credit card debt, may in some cases be excluded from income.
