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?
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 Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.
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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 provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.
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.
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.
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