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If a bank modifies my mortgage on a second home, will that…

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If a bank modifies my...
If a bank modifies my mortgage on a second home, will that create a tax liability for me? My bank has offered to reduce my mortgage by $145,000 and covert the ARM to a 26 year fixed at 5%.
Submitted: 8 years ago.Category: Tax
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Answered in 3 minutes by:
6/11/2010
Tax Professional: Lev, Tax Advisor replied 8 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,272
Experience: Taxes, Immigration, Labor Relations
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In short - the answer is yes, however...

 

The amount of debt forgiven is reportable on 1099-C - http://www.irs.gov/pub/irs-pdf/f1099c.pdf - generally is taxable, unless an insolvency exemption apply -- you should file a form 982 - to proof your insolvency - and might exclude all or part of canceled debt from taxable income.

Please see the IRS Publication 908 Bankruptcy Tax Guide - http://www.irs.gov/pub/irs-pdf/p908.pdf - with example of the form 982 on the last page.

 

A debtor is insolvent when, and to the extent, the debtor's liabilities exceed the FMV of the assets. Determine the debtor's liabilities and the FMV of the assets immediately before the cancellation of the debtor's debt to determine whether or not the debtor is insolvent and the amount by which the debtor is insolvent.

Insolvency is determined by filing the form 982.

 

Please let me know if you heed any further help or clarification.

 

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