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Old 04-14-2014, 02:51 PM
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Debt Cancellation/Insolvency Questions

We had debt from a short sale cancelled on 4/12/14. We are trying to prove insolvency.

Two Questions:

1. Do we have to claim 529 accounts on the insolvency form (982)?

2. On 4/10/14 (two days before date of cancellation), my husband's aunt passed away and left him a large sum of money and assets. Does this money need to be included on the 982? The form says to include assets "immediately before" the debt was cancelled. Is "immediately before" hours, days, weeks?? I'm assuming he took ownership of his aunt's estate immediately upon her death (does this happen immediately??). I am putting calls in to find out when he became the owner of the assets (even though he did not receive a distribution), but thought I'd see if anyone has any experience with this!

If we can't prove insolvency we are going to owe $40,000... ugh!!!

Thanks in advance!



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Old 11-29-2014, 01:11 AM
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Most lenders can forgive debt in some situations, if a borrower reaches the best agreement. Debt forgiveness is a fantastic thing. A loan provider that decides to forgive some part of one's loans is great, but it comes with a caveat. The problem is that the pardoned debt is handled and taxed as income by the IRS, which will hurt come tax season. With a personal loan, you can pay your taxes.



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Old 11-29-2014, 05:47 AM
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1. Do we have to claim 529 accounts on the insolvency form (982)?==========>>>>>>>as you can see, insolvency is certainly one exception allowing you to avoid a tax bill on your short sale. You, as an insolvent taxpayer, do not need to include canceled debt in your income to the extent insolvent. You are insolvent if immediately before the short sale the total of all of your liabilities is more than the FMV of all of your assets.i.e., neg bank account or etc. When you receive the 1099, you'll need to complete Form 982 to claim the insolvency exception.



2. On 4/10/14 (two days before date of cancellation), my husband's aunt passed away and left him a large sum of money and assets. Does this money need to be included on the 982? The form says to include assets "immediately before" the debt was cancelled. Is "immediately before" hours, days, weeks?? I'm assuming he took ownership of his aunt's estate immediately upon her death (does this happen immediately??). I am putting calls in to find out when he became the owner of the assets (even though he did not receive a distribution), but thought I'd see if anyone has any experience with this! ======>>>>>>>> I guess so; as you want to declare insolvency, you have to treat everything you own as an asset. While the insolvency exception is helpful, it may not solve your tax burden if you have certain assets with value that you may not have considered. 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).in the case of the effect of an inheritance while you are in bankruptcy depends on timing. If you inherit within 180 days of the date your petition is filed, that inheritance will become property of your bankruptcy estate. You will be required to bring that matter to the attention of the court and your trustee by amending the paperwork filed with the court to disclose the inheritance. Failure to address this via the 982 may result in an IRS "under-reporter" assessment. They will tax you on the 1099C if you leave it off the return when all tax documents reported to them are matched against the data on your return.
I guess yu need the assistance of legal counsel.



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