I was offered a debt settlement and found out that the banking institution would be sending me a form 1099. I understand that under certain situations even though you have to file that 1099 when you do your taxes, you may not have to pay tax on what the IRS views as "income." At this time my wife and I have a modified mortgage with Beneficial/HFC, but it's not a permanent loan mod. Would I still be responsible to pay this income, even though the original debt was for a home improvement?
I want to thank you all thus far for your responses. Mr. Goldberg here is some info that makes me question whether I would have to pay anything on this debt settlement... "According to the IRS, under the Mortgage Debt Relief Act, married people filing a joint return can exclude up to $2 million of forgiven debt on your principal residence from income. (The limit is $1 million for singles or a married person filing a separate return). In other words, if you went through foreclosure, "got your mortgage modified" or did a short sale, you likely don't owe Uncle Sam a dime. Please note the "got your mortgage modified" I've been paying on a loan mod for several months now, so this is where I question what I may or may not have to do...?
Criminal Defense Attorney
The amount of debt you save in negotiation is considered taxable income.
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Any debt settlement generates a 1099 and that amount is taxed as income.
I don't see how the loan mod would have any bearing on your obligation to pay tax on the settled debt. Only your accountant or tax adviser that is fully familiar with your financial circumstances can advise as to whether you will be liable to pay taxes on the forgiven debt. The issue often comes down to whether you are determined to be "insolvent".
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