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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: 2 years ago.
Category: Bankruptcy Law
Expert:  HCLegal replied 2 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 :

I hope you found my answer helpful, and if so please do not forget to click ACCEPT, this is the only way that I will get credit for assisting you– I receive no credit for helping you unless you actually press ACCEPT, even if you already have a subscription. By pressing the ACCEPT you will not be charged any more money. If you need more information, please use the REPLY button and I’d be more than happy to answer to your satisfaction. There is no fee for follow up questions before or after accepting, if we continue the conversation.

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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 :

If I have answered all of your questions please remember to press the ACCEPT button as that is the only way that I will get credit for assisting you. You will not be charged any more money by pressing the ACCEPT button, it just tells Just Answer to pay me for my time.

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