Unfortunately, have no $ for professional tax services this year. I am using Turbo Tax.
My wife and I Each received 2 1099-As from our former mortgage (version 1 &.then "corrected" version 2) House foreclosed on in CA and surrenderin bk. Turbo tax says don't need to address the 1099-A. True? I am just not sure what to do with this or how and when to fill out the form that says I was bankrupt?
Also, FIA card services sent me a 1099-C for cancellation of debt. The debt was taken out under my small sole prop biz that also went under in the BK. I received a discharge, but they sent me this 1099-C for $26k. What do I do with this? On the letter that says its a 1099C is says:
"Business Bankruptcy Discharged Debt
Borrower was personally liable for repayment of debt.
Debt discharged in BK"
Chapter 7 Bankruptcy Attorney
When your debt is reduced or eliminated, even if the debt was “forgiven” or excused involuntarily, as through a foreclosure, you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude up to $2 million of debt forgiven on your principal residence, as long as it was during tax years 2007-2012. If you are married but filing a separate return the limit is $1 million.
If you incurred debt from mortgage restructuring or foreclosure, you may be able to exclude that too. In order to qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
Using the proceeds of the loan to pay off credit card debt, or buy a new car, may not qualify for the exclusion. IF THE DEBT WAS DISCHARGED IN A BANKRUPTCY THERE IS NO TAX.
In order to claim the exclusion you need to fill out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does NOT qualify for the tax relief provision. However, in some cases, other tax relief provisions such as insolvency or bankruptcy may allow you to exclude the debt forgiven from income. IRS Form 982 provides more details about these provisions.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676)
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Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and Massachusetts only and make no attempt to opine on matters of law that are not relevant to those three States. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship.
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Chapter 7 Bankruptcy Attorney
Debts that were discharged in bankruptcy are not subject to being forgiven by the creditor. The creditor had no choice in the matter if the bankruptcy court discharged the debt & so couldn't have forgiven it.
Tax law does not tax debts discharged in bankruptcy. So "forgetabout it!"
File a form 982 and check box 1a, discharge under title 11.
Disclaimer of California Attorney. Laws differ from state to state. Although the above response is believed to be accurate, it should not be relied upon as any type of legal advice because the information provided is incomplete. It is intended to educate the reader and a more definite answer should be based on a consultation with a lawyer. No attorney client relation is formed with me without a written contract. Good Luck starts with a strategy and a plan. Robert J. Suhajda, MS,CPA Attorney-At-Law 17721 Norwalk Blvd. #43 Artesia, CA 90701 562-924-8922 Tax Relief Lawyer. Former financial auditor and controller. Admitted to US Tax Court, Income Tax, IRS representation, Fiduciary income tax returns, Estate and Gift tax returns, Homeowner Association Strategist.
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It really depends on the order in which the house was surrendered back to the bank. If you filed a Chapter 7 Bankruptcy and surrendered the property back to the secured lender then your debt was discharged through Ch. 11 and is the box 1 A. on the 982 form. You still receive the 1099 for discharge of debt, but the 982 form is the exemption.
The second debt will allow you to use the 982 form because the document you received specifically stated "debt discharged in BK"