How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask R. Klein, EA Your Own Question

R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2879
Experience:  Over 20 Years experience
Type Your Tax Question Here...
R. Klein, EA is online now
A new question is answered every 9 seconds

Hi Randall, need another answer. Sold my property short and

Resolved Question:

Hi Randall, need another answer. Sold my property short and Chase forgave about 500k. My total assets at the time were about 400k. Would this forgiveness be tax exempt because of the insolvency clause in the IRS code ?? Jack
Submitted: 1 year ago.
Category: Tax
Expert:  R. Klein, EA replied 1 year ago.

Randalltax :

You did not mention if this is a rental property or your main residence. I will assume it is a rental property.

Randalltax :

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.

Randalltax :

On the day before, you include the property and its debt in your calculation.

Customer:

yes rental

Randalltax :

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.

Randalltax :

If the forgiven debt was $50K, then there is no taxable portion.

Customer:

the assets included are our 401k, cars, and furniture.

Randalltax :

Some districts allow protection of the 401K; others don't. The Southern Federal district does not include retirement accounts, but the North does.

Customer:

the mortage was 900k and shortsale was 400k and Chase forgave the 500k left.

Randalltax :

You'll need to add up all your assets and all liabilities the day before

Randalltax :

That way you will determine how much of the 500K is not taxable.

Customer:

oh i see. it would be alot better if assets were not so high

Customer:

total liabilities were about 1 million. Chase forgave about 500k. Assets about 400k

Randalltax :

The insolvency is not measured by the property in question, but by your entire personal financial picture.

Randalltax :

How much were your assets on the day before, including the Fair value of the house?

Randalltax :

You sold the house for 400K, so we know you had to have assets of more than that.

Randalltax :

And how much were all your liabilities, including mortgage on main house, car loans, credit cards...

Customer:

about 300k for house(not 400k), and 325,000 in 401k, all other assets negligible

Customer:

we rent now

Randalltax :

I'm confused: What was the value of the rental house and separately, your personal house (if owned)? How about your cars?

Customer:

value of rent house 300k it is what is sold short for

Customer:

we rent have another rental in Balt under water about 75k

Customer:

cars worth maybe 10k

Customer:

nothing in savings or checking

Randalltax :

And how much is the other rental worth at that time and the amount owed on that property?

Customer:

other rental worth 125k owe 200k

Randalltax :

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.

Randalltax :

So, that should give some relief.

Customer:

are we pretty sure or am I not giving you the info you want ?

Randalltax :

based on the info your provided, it appears you were more than $500K insolvent.

Randalltax :

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.......

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2879
Experience: Over 20 Years experience
R. Klein, EA and 11 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.