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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 14449
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I filed bk in 2011 and it was discharged in 2011 i listed 4

Resolved Question:

I filed bk in 2011 and it was discharged in 2011 i listed 4 investment properties for the 1 and 2 liens and did not reaffirm them and tried to sell them after the bk but they went to foreclosure. The bank BofA sent me 4 1099-C Cancellation of Debt. Since I filed bk prior to the foreclosure how does this cancellation of debt effect me? Is this income to me? It is more than $500,000 thank you
Submitted: 11 months ago.
Category: Finance
Expert:  Megan C replied 11 months ago.

Megan C :

Hello and welcome to JustAnswer.com

Megan C :

How are you today?

Customer:

ok and yourself?

Megan C :

Good.

Megan C :

I hate to be the bearer of bad news, but if the debt was not included in your bankruptcy, then it would be includable in income

Megan C :

However, if you are insolvent there is an exclusion.

Megan C :

If your liabilities immediately prior to the foreclosure are greater than your assets immediately prior to foreclosure, you can exclude the amount by which your liabilities exceed your assets. So, this may help.

Customer:

the debt was included and listed

Megan C :

Okay then if it was in your bankruptcy then it's excluded

Megan C :

This is not income to you.

Customer:

so why would they send me a 1099

Customer:

the property foreclosed after my bk was discharged

Megan C :

They still send out the 1099 because they are required to, but when you file your tax return on form 982 you will indicate that the debt was discharged in bankruptcy and you will be fine.

Customer:

I was trying to work with the bank to sell the properties after the bk and was in a middle of a divorce and my ex blocked the sale of the properties so they foreclosed

Megan C :

I'm sorry to hear that. However, if it was listed and included in the bankruptcy you are fine.

Customer:

are you sure about this because I have a CPA that does my taxes and I do have some carry back losses from previous and he thinks its income

Customer:

so do I just tell him to use the form 982? and you said

Megan C :

Yes, if the debts were discharged due to bankruptcy then they are not included in income.

Megan C :

Also, if you are insolvent, the amount would be excluded. They would also be excluded if you had non-recourse debt.

Customer:

ok I will tell him thank you

Megan C :

You're welcome.

Megan C :

Is there anything else I can assist you with today?

Customer:

I sure hope this works

Megan C :

if not, please rate as "excellent" so that I may receive credit for assisting you today

Megan C :

I wish you the best of luck with this!

Customer:

ok thanks again

Megan C :

You're welcome!

Customer:

I will send a copy of the message you gave me to my cpa right now and see what he says

Megan C :

Okay thanks.

Megan C :

If you would, please rate so that I may receive credit for assisting you

Megan C :

This is from the IRS:

Megan C :

Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:



  • Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.

  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

  • Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.

  • Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

Megan C :

Hope that helps.

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 14449
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 5 other Finance Specialists are ready to help you
Expert:  Megan C replied 11 months ago.
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