You did not mention if this is a rental property or your main residence. I will assume it is a rental property.
The insolvency rule allows forgiveness of the debt as income up to the point of insolvency. You must measure your net worth on the day before the forgiveness of debt.
On the day before, you include the property and its debt in your calculation.
So if you had 400K in assets and, including the debt, you owed $500K, then you can exclude up to $100K of the forgivent debt. But if the forgiveness was $150K, you still have $50K of income.
If the forgiven debt was $50K, then there is no taxable portion.
the assets included are our 401k, cars, and furniture.
Some districts allow protection of the 401K; others don't. The Southern Federal district does not include retirement accounts, but the North does.
the mortage was 900k and shortsale was 400k and Chase forgave the 500k left.
You'll need to add up all your assets and all liabilities the day before
That way you will determine how much of the 500K is not taxable.
oh i see. it would be alot better if assets were not so high
total liabilities were about 1 million. Chase forgave about 500k. Assets about 400k
The insolvency is not measured by the property in question, but by your entire personal financial picture.
How much were your assets on the day before, including the Fair value of the house?
You sold the house for 400K, so we know you had to have assets of more than that.
And how much were all your liabilities, including mortgage on main house, car loans, credit cards...
about 300k for house(not 400k), and 325,000 in 401k, all other assets negligible
we rent now
I'm confused: What was the value of the rental house and separately, your personal house (if owned)? How about your cars?
value of rent house 300k it is what is sold short for
we rent have another rental in Balt under water about 75k
cars worth maybe 10k
nothing in savings or checking
And how much is the other rental worth at that time and the amount owed on that property?
other rental worth 125k owe 200k
OK, Jack, so I see that you were upside down (negative net worth) by more than $500K, so it would look like none of the forgiven debt would be taxable.
So, that should give some relief.
are we pretty sure or am I not giving you the info you want ?
based on the info your provided, it appears you were more than $500K insolvent.
Unfortunately, I must run now or my wife will leave me :) . If you need further assistance on this question, feel free to leave your questions and I will respond in a few hours. Thanks for you patience.......