Its my understanding you cant be taxed on a secure loan debt cancelation?

Asked almost 3 years ago - Gulf Shores, AL

If i am corect you pay taxs only on non secure debt cancelation? So i had a carrepoed now they want me to pay taxs on the loan amount that was written off is that correct? If i read it right on the irs site it states you dont pay taxs on cancellation if you forfit the property?

Attorney answers (4)

  1. Curtis Lamar Harrington Jr

    Contributor Level 20

    7

    Lawyers agree

    Answered . If in bankruptcy, surrender of the property does not create cancellation of debt income.

    If outside bankruptcy and if there is a deficiency forgiven, cancellation of debt income might be triggered.

    The other inquiry is whether you are insolvent. If insolvent, there is no cancellation of debt income under IRC section 108. Insolvency is determined by looking at your assets minus you liabilities. If zero or less, then you are insolvent and will need to show this at tax return time.

    Good Luck & War Eagle!

    Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal... more
  2. Henry Daniel Lively

    Contributor Level 20

    6

    Lawyers agree

    Answered . If the debt is non-recourse it does not give rise to cancellation of debt income. The issue is not whether the debt is secured. If you pay the lender back less than you borrowed on a recourse debt you have cancellation of debt income. Some exclusions may apply such as the 2007 Mortgage Forgiveness Debt Relief Act, Bankruptcy, or Insolvency. See a local tax professional to see if you qualify for any of these exclusions.

    Any individual seeking legal advice for their own situation should retain their own legal counsel as this response... more
  3. Christopher Michael Larson

    Contributor Level 19

    6

    Lawyers agree

    Answered . Why would you think this is non-recourse debt? You were likely liable for the debt, on paper at least.

    If you were insolvent at the time, you can file a Form 982 and exclude this income.

    Christopher Larson
    www.bellevue-tax-attorneys.com
    www.insightlawfirm.wordpress.com

  4. Brad Howell

    Contributor Level 13

    4

    Lawyers agree

    Answered . Debt that is secured by collateral but is canceled can be (and is generally) income to you.

    There are exceptions, as always. A few of the one mentioned by other attorneys, such as bankruptcy, are ways that canceled debt is not income to you. Another one is due to the Mortgage Forgiveness Debt Relief Act of 2007. Generally speaking, if you forfeited your personal residence in a foreclosure, then this act will exclude the canceled debt from your income.

    It would be best to meet with a tax attorney so that you can fully explain the entirety of the details of your situation, including what type of secured loan was forgiven, whether a 1099-A and/or 1099-C was issued, how the debt was canceled, etc.

Can't find what you're looking for? Ask a Lawyer

Get free answers from experienced attorneys.

 

Ask now

26,387 answers this week

3,076 attorneys answering

Ask a Lawyer

Get answers from top-rated lawyers.

  • It's FREE
  • It's easy
  • It's anonymous

26,387 answers this week

3,076 attorneys answering