One can only imagine all the high-fives and fist-bumps that erupt once a can't-make-ends-meet borrower finally, finally talks a lender into forgiving $3,000 in credit-card debt.
Now picture that person months later handing over a little piece of paper called a 1099-C to a tax preparer. The tax preparer must break the bad news: Most times, canceled debt is treated like income. And $3,000 of forgiven credit-card debt must be reported as income on the state and federal income-tax returns.
If you don't report it, you can expect the Internal Revenue Service to come calling. "The IRS gets a copy of that 1099," said Jim Van Grevenhof, senior tax analyst for the tax and accounting business of Thomson Reuters. "They're going to be looking for that on your tax return. And if you don't deal with that, they're going to ask why." A Form 1099-C is issued when a debt of $600 or more is forgiven or canceled.
According to the IRS, the number of 1099-C forms filed with the federal government by creditors and debt collectors grew from fewer than 1 million forms in 2003 to more than 1.987 million in 2008. Some estimates project 2.8 million 1099-C forms will be sent out in 2011 for the 2010 tax year, according to CreditCards.com.
What's unsettling, of course, is people who couldn't afford to pay their debt now owe thousands in taxes.
They're going to need to borrow money — or enter into installment-payment plans with the IRS. If you'd need to add $50,000 in canceled debt to your income, you could be looking at an additional $15,000 owed on a tax bill.
All canceled or forgiven debt, though, is not treated the same. For example, if student-loan debt is canceled as part of a forgiveness program for working in a particular field, such as health care in an underserved community, the debt that is forgiven is tax-free. The same is true for public-service loan-forgiveness programs, said Mark Kantrowitz, publisher of Fastweb.com. But the forgiveness of the remaining student-loan balance after 25 years in an income-based repayment program is taxable.
There is a provision that allows up to $2 million of canceled debt on a mortgage to be excluded from income. This applies only to a principal residence, and only if a foreclosure or short sale takes place from 2007 through 2012.
One can only imagine all the high-fives and fist-bumps that erupt once a can't-make-ends-meet borrower finally, finally talks a lender into forgiving $3,000 in credit-card debt.
Now picture that person months later handing over a little piece of paper called a 1099-C to a tax preparer. The tax preparer must break the bad news: Most times, canceled debt is treated like income. And $3,000 of forgiven credit-card debt must be reported as income on the state and federal income-tax returns.
If you don't report it, you can expect the Internal Revenue Service to come calling. "The IRS gets a copy of that 1099," said Jim Van Grevenhof, senior tax analyst for the tax and accounting business of Thomson Reuters. "They're going to be looking for that on your tax return. And if you don't deal with that, they're going to ask why." A Form 1099-C is issued when a debt of $600 or more is forgiven or canceled.
According to the IRS, the number of 1099-C forms filed with the federal government by creditors and debt collectors grew from fewer than 1 million forms in 2003 to more than 1.987 million in 2008. Some estimates project 2.8 million 1099-C forms will be sent out in 2011 for the 2010 tax year, according to CreditCards.com.
What's unsettling, of course, is people who couldn't afford to pay their debt now owe thousands in taxes.They're going to need to borrow money — or enter into installment-payment plans with the IRS. If you'd need to add $50,000 in canceled debt to your income, you could be looking at an additional $15,000 owed on a tax bill.
All canceled or forgiven debt, though, is not treated the same. For example, if student-loan debt is canceled as part of a forgiveness program for working in a particular field, such as health care in an underserved community, the debt that is forgiven is tax-free. The same is true for public-service loan-forgiveness programs, said Mark Kantrowitz, publisher of Fastweb.com. But the forgiveness of the remaining student-loan balance after 25 years in an income-based repayment program is taxable.
There is a provision that allows up to $2 million of canceled debt on a mortgage to be excluded from income. This applies only to a principal residence, and only if a foreclosure or short sale takes place from 2007 through 2012.
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Chris White - Team Leader said
"Unfortunately you are not alone. It's more than an outcry. The powers that be really need to come down harder on Bofa than they already are. Working on these short sale for over 2 years now I've uncovered down right fraud happening on the lenders parts. If they cared more about moving this country forward than protecting their own wallets then they would cut the red tape and approve these short sales in a timely manner. Our team made the wise decision to get BofA loans which were FHA or Freddie Mac backed, approved prior to listing on the market. Then we can list the home as "Price Approved" and close in 30 days. In this instance BofA does a full appraisal, rather than an incompetent "Broker Price Opinion" (nothing against agents but they have no idea how to make adjustments on comparable homes) and then the bank issues an "Approval To Participate" letter which dictates what price we can go on the market and take anything north of 88%. I really do hope your situation improves. " about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:15 AM
Lisa Zeiner said
"We made an offer 4 months ago to BofA, and have heard nothing. It was a cash offer which is better than the zero money they are collecting now. And since the people don't care they are trashing the place, by the time BofA gets around to it our offer will be gone as the place is a mess!! Septic issues now, garbage being dumnped. All of this could have been avoided if BofA really wanted to correct their cash flow problem and sell these properties in a timely manner. They cry about cash but then do nothing intelligent to fix the problem" about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:06 AM
Jones Ramirez said
"Thank you for the work you have done into this post, it helps clear up a few questions I had." about How do appraiser’s determine a homes value?
on Tuesday, April 19, 2011 @ 10:07 PM
HollyRobsonf said
"Hey - I am certainly happy to find this. great job!" about Bank of America to Offer Principal Reduction to Underwater Borrowers
on Wednesday, April 13, 2011 @ 6:45 PM