Even though I lost the entire property, the IRS says the the mortgaged amount for the property (mid-100,000s) counts as income (because it was a "cancellation of a debt").
2007-02-24 07:04:31 · 3 answers · asked by Pat D 1 in Business & Finance ➔ Taxes ➔ United States
The foreclosure itself is just a sale. The sales price is the outstanding balance of the loan and the cost basis is whatever you paid for it plus any improvements. You could actually have a taxable gain from the foreclosure itself.
If the remaining debt was forgiven it is considered taxable income to you. However, if you were insolvent at the time of the cancellation of debt, it is not taxable.
Most people associate insolvency with bankruptcy and while that is true, you are also considered insolvent if you owe more than you own. If your total debts (including the debt to be forgiven) exceed your total assets you are insolvent by definition.
If the value of the home is less than the amount of the mortgage, there will be no taxable income due to COD. If the value of the home is greater than the amount of the mortgage, the difference may be considered taxable income to you. However, even in that case, the insolvency rule still applies and if you have other debt (whether it's being canceled or not) you may still be considered insolvent and therefore will have no tax consequences.
2007-02-24 07:20:15 · answer #1 · answered by Bostonian In MO 7 · 2⤊ 0⤋
it relies upon on too many stuff you do not point out right here ie how lots has been withheld so some distance out of your paychecks, will you nevertheless have the flexibility to itemize or could motel to the general deduction, et al
2016-12-17 18:01:49 · answer #2 · answered by ? 3 · 0⤊ 0⤋
See an accountant; what the IRS told you sounds insane.
2007-02-24 07:09:33 · answer #3 · answered by Anonymous · 0⤊ 3⤋