Originally Posted by sagasha
Thanks for the reply.
My credit score after forcloser is 760 (never missed a payment on anything for 40 years until foreclosure) but being retired and getting a large tax bill will wipe me out. So if I had to choose, a low credit score is better than not enough income to live on.
Since foreclosure happened in 2012 and the Mortgage Forgiveness Act was in effect at the time, could one make the argument in appeal that the debt forgiveness actually happen then and not at time when 1099c was sent and have a chance of being successful?
Again thanks for any input.
Under current law, the special provision to exclude canceled debt expired on December 31, 2013. This means that, unless Congress acts to extend the Mortgage Debt Relief Act, any debt that is forgiven in 2014 or later will be considered taxable income. So if you are going through a foreclosure or mortgage refinancing, make sure it is completed by the end of 2013, or you may owe income tax on your canceled debt.
Anyone who missed the chance to get the exemption in the 2008, 2009 or 2010-2013 tax years can still do so by filing amended returns. On part III of the 1040-X you may explain that I guess you received the 1099-C after filing the original return(Individuals receiving a 1099-C after they have already filed their taxes have to file a Form 1040X to amend their return to report this income. )and that you are including a 982 that excludes the possible income from the 1099-C because of the Mortgage Debt Relief Act assuming that it does. The amount of debt forgiven must be reported on a IRS Form 982 . In order to take advantage of the insolvency exemption, however, you must fill out and attach IRS Form 982 along with the 1099-C to your federal income tax return.For the purposes of completing Form 982, the IRS considers you insolvent if the total of all your liabilities exceeded the FMV of all your assets. If it is excluded because of insolvency, you would put Cancellation of Debt income on line 21 as zero and include a worksheet showing your income and expenses to show you were insolvent at the time of the discharge of debt. To claim the exclusion for you, your accountant must have the original settlement and sale-of-house documents and know how much debt was canceled or forgiven.To determine 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 creditors under the law, such as interest in a pension plan and the value of a retirement account.
You can not e-file your amended return.You must print and mail an amended return.
Note;asyou know, it's complicated to go through and figure out if you're insolvent since You might have some assets that you weren't thinking about. The IRS sends taxpayers who fail to report the 1099-C income on their tax returns a Notice CP 2000. That letter is the first step toward the IRS assessing a tax based on the full amount of the forgiven debt -- regardless of whether the person may have qualified for an exemption.