The following is a small income tax project:

"You have been contacted by CoCo Chanel, a friend of a friend, who needs some tax advice. Ms. Chanel owned a home in Hollywood but fell behind on the payments, due to lack of income. The bank holding the mortgage has foreclosed on the home. She received the attached form 1099-C. She called you in a total panic asking if this would be taxable income for 2010."

the form 1099-C states debt cancelled on 3/12/2010 in the amount of $148,000. FMV of property was 250,000.

The cancellation of debt IS taxable correct?

This post was edited on 4/29/10 at 8:30 pm

2 ...

Report Post

Posted by hedgediver

LSU

Member since Sep 2004

2093 posts

Posted on 4/29/10 at 9:06 pm to hedgediver

bump

1 ...

Report Post

Posted by kfizzle85

Member since Dec 2005

22022 posts

Posted on 4/29/10 at 9:09 pm to hedgediver

I am almost 100% positive they scoped out mortgage debt in a bill in 2008 or 2009.

0 ...

Report Post

Posted by LSURussian

Member since Feb 2005

126857 posts

Posted on 4/29/10 at 9:24 pm to hedgediver

As usual, kfizz is correct....except for the enactment year.

The Mortgage Debt Relief Act of 2007

quote:
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.

Page 1