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HCLegal
HCLegal, Attorney
Category: Bankruptcy Law
Satisfied Customers: 423
Experience:  I have filed over a thousand bankruptcy cases.
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If my mortgage company is willing to enter a deed in lieu of

Customer Question

If my mortgage company is willing to enter a deed in lieu of forclosure, what would be the process for a cancellation of debt for the forgiven amount of debt? I know my total debts would be greater than my fair market value of total assets.
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  HCLegal replied 4 years ago.

HCLegal :

Hello and thank you for your question here on Just Answer.

HCLegal :

Are you asking what the IRS rules are on whether or not you have to pay income taxes on the amount of the forgiven debt?

HCLegal :

I think that is what you are asking about...

HCLegal :

Here is a link to the IRS's website that will answer all of your questions regarding debt forgiveness and 1099C's

HCLegal :

http://www.irs.gov/pub/irs-pdf/p4681.pdf

HCLegal :

Basically, it works like this: if you are insolvent according to IRS standards, then you don't have the claim the debt forgiveness as income on your tax return. Per IRS: insolvency = debts exceed assets.

HCLegal :

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Customer :

If I am correct, the cancellation of debt is only good until the end of 2012. I will be entering into the deed in lieu of forclosure within the next couple of weeks and am wondering if I would have time. I guess I would claim them on my 2012 taxes, but I can't do those until 2013, so would I still be clear?

Customer :

I'm reffering to The Mortgage Forgiveness Debt Relief Act of 2007

HCLegal :

The Mortgage Forgiveness Debt Relief Act of 2007 would apply in your situation in you can get the bank to forgive the debt this year.

HCLegal :

Here is the IRS website that explains everything on this Act.

HCLegal :

http://www.irs.gov/individuals/article/0,,id=179414,00.html

HCLegal :

to answer your question, YES if the bank forgives the debt this year you would still be eligible even though you do not file your taxes until 2013.

HCLegal :

this is because the debt was forgiven in 2012 which is the requirement.

HCLegal :

Please let me know if you have any other questions.

HCLegal :

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