Dinar Daily
Would you like to react to this message? Create an account in a few clicks or log in to continue.
Latest topics
» I am too pretty for math, but....
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeYesterday at 6:56 pm by Mission1st

» Interesting article
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeYesterday at 6:34 pm by Mission1st

» Phony Tony: New Platform, same old song and dance
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeYesterday at 6:32 pm by Mission1st

» The Craziness of Scam by "Tony TNT Renfrow" and the Iraqi Dinar Currency Scam
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeTue Jun 11, 2024 12:26 pm by Mission1st

» Even conspiratorial currency speculators aren’t buying a Russian ruble revalue - It’s not the next the Iraqi dinar
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeMon Jun 10, 2024 1:04 pm by RamblerNash

» Go Russia
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeSat Jun 08, 2024 5:20 am by Dorotnas

» The Fundamentals of Finance and Pimpy Live
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeFri Jun 07, 2024 5:02 pm by Dorotnas

» Carnival Rides
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeFri May 10, 2024 5:03 pm by kenlej

» Go Russia
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeSun May 05, 2024 10:51 am by kenlej

» Textbook Tony
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeMon Apr 29, 2024 4:13 pm by Mission1st

» The Rockefellers and the controllers are freaking out right about now
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeFri Apr 26, 2024 11:16 am by kenlej

» Phony Tony sez: Full Steam Ahead!
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeSat Apr 13, 2024 11:51 am by Mission1st

» Dave Schmidt - Zim Notes for Purchase (NOT PHYSICAL NOTES)
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeSat Apr 13, 2024 11:45 am by Mission1st

» Russia aren't taking any prisoners
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeFri Apr 05, 2024 6:48 pm by kenlej

» Deadly stampede could affect Iraq’s World Cup hopes 1/19/23
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeWed Mar 27, 2024 6:02 am by Ditartyn

» ZIGPLACE
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeWed Mar 20, 2024 6:29 am by Zig

» CBD Vape Cartridges
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeThu Mar 07, 2024 2:10 pm by Arendac

» Classic Tony is back
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeTue Mar 05, 2024 2:53 pm by Mission1st

» THE MUSINGS OF A MADMAN
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeMon Mar 04, 2024 11:40 am by Arendac

»  Minister of Transport: We do not have authority over any airport in Iraq
How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness I_icon_minitimeMon Mar 04, 2024 11:40 am by Verina

How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness

Go down

How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness Empty How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness

Post by Guest Thu Jan 12, 2012 11:02 am

How to Avoid Getting Taxed for Phantom Income and Debt Forgiveness

By Eva Rosenberg, EA

If you negotiate with a lender or credit card company to get your debt reduced, you walk away feeling lighter, happier, and calmer.

Until the 1099-C arrives.

Panic time! Not only is cancelled debt taxable income, but it’s also generally taxed as ordinary income.

Except in cases when it’s not taxed at all:

1) Gift. When your loan is with a family member or friend, you may all agree to treat it as a gift. However, Wells Fargo, Chase, or Citibank is unlikely to gift you $25,000 or so just because you sit next to each other at Thanksgiving dinner.

2) Bankruptcy. If your debt was reduced or discharged at the same time as the 1.5 million nonbusiness bankruptcies in 2010 or 2011, there’s no income.

3) Insolvency. This is the exception most people overlook. If you’re insolvent the day before the lender waives your balance due, you can avoid paying tax on that 1099-C. The IRS considers you insolvent when your debts are higher than your assets.

4) Acquisition debt. For mortgages forgiven through 2012, the Mortgage Forgiveness Debt Relief Act of 2007 allows you to avoid paying tax on this particular debt cancellation. You are protected if the defaulted loan was the original debt on the property. Folks who refinanced and consolidated their debt, or pulled cash out of the new loan, are not protected. But you can try the insolvency route.

How to Convince the IRS You’re Insolvent

You can’t file this tax return electronically. You must provide an explanation. Include a worksheet showing your financial position before each lender cancelled a debt. List your assets (home, other property, used car, home furnishings, bank accounts, retirement accounts, etc.) in one column. List your debts in the next column. Include credit card debts, mortgages, personal loans (make sure you have them in writing), student loans, unpaid taxes, etc.

If the total of your asset column is higher than the total of your debt column, you’re not insolvent. You’ll owe the tax on all the 1099-C income.

However, if your debts are higher than your assets, you are insolvent up to the amount of the negative number. Suppose your cancelled debt is $15,000, and your insolvency computation results in $10,000 more debts than assets. You will pay tax on $5,000 worth of cancelled debts ($15,000 in debts, less the $10,000 insolvency). And if your debts are $20,000, then all of your cancelled debt will be tax-free.

Another Little Complication

That worksheet explains how you arrived at your insolvency computation. Next, use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). The IRS insists you reduce any future tax benefits from the discharge to the extent that the discharged debt is not taxed.

Guest
Guest


Back to top Go down

Back to top


 
Permissions in this forum:
You cannot reply to topics in this forum