Iget a different total, but you're still insolvent, so will not have to pay taxes on the forgiven debt
If this were a primary residency, of course, you wouldn't have to show insolvency, but as you see, based on these numbers, you're there
This is correct. I made a mistake. Your total is correct. My accountant disputes that. Can you give me a little more detail as to what to quote to him as he is the one who will be doing the taxes and need to be sure before I agree to the short sale.
sure, let me get the IRS documentation ... just a sec
Do not include a canceled debt in income to the extent that you were insolvent immediately before the cancellation. You were insolvent immediately before the cancellation to the extent that the total of all of your liabilities was more than the FMV of all of your assets immediately before the cancellation. For purposes of determining insolvency, assets include the value of everything you own (including assets that serve as collateral for debt and exempt assets which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account). Liabilities include:
The entire amount of recourse debts,
The amount of nonrecourse debt that is not in excess of the FMV of the property that is security for the debt, and
The amount of nonrecourse debt in excess of the FMV of the property subject to the nonrecourse debt to the extent nonrecourse debt in excess of the FMV of the property subject to the debt is forgiven.
You can use the worksheet on page 6 to help calculate the extent that you were insolvent immediately before the cancellation.
You'll find this under "Insolvency" in the "exceptions" area on this page: http://www.irs.gov/publications/p4681/index.html#en_US_2012_publink1000192015
By the way, you can bookmark and come back hre as long as you need, for reference ...
and the link will stay active (to the IRS doc) as well
If this HAS given you enough information, I would appreciate either an “accept” or a feedback rating of 3 (OK) or better. That's the only way they will pay us here. HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.
Thanks a lot. One thing, if for any reason IRS comes to me saying that you do owe any tax and I do not have to money to pay, can I still file for the bankruptcy? Will IRS leave me alone then?
First, if your accountant sends in the worksheet and does the 982, you shouldn't have any problem
But, the bankruptcy will be much more cumbersome..... but WOULD, if granted, provide even more documentation of the insolvency
the tax issue is very common right now, and simply a matter of filing
One sec please reading it
So, if I file the for bankruptcy the tax which are for example due (for whatever reason) will be removed even if the bankruptcy is filed after the effect?
That's a different queston
What I was saying was that the debt forgiveness WILL NOT be taxable as long as you were truly insolvent
Can I ask IRS before I agree to short sale? do they normally entertain question about what is covered under insolvency or not?
And going through the bankrup[tcy you will have much higher documentation requirements than simply completing the worksheet and filing a 982 with your return
It's right there in the p[uiblication I gave you
No, I am not going to go for bankruptcy if I do not have to pay taxes on the forgive loan,
you're certainly welcome toask them
But in any conflict the IRS publication (in this case publication #4681) will always win out
If those numbers are good you're fine
OK thanks for your help. You have been very patient.
You might want to consider having a competent person do your taxes
there shouldn't be any doubt there