01:55:00
Debt forgiveness is an excellent thing. A loan provider that chooses to forgive some portion of one's loans is great, but it comes with a caveat. The hitch is that the forgiven debt is treated and taxed as income by the IRS, which will hurt come tax time.
Government just views way to get more taxes
Millions of people breathe sighs of relief each year when granted debt forgiveness. Also called debt relief, debt cancellation, it's where a loans lender of some sort, like a credit card business, mortgage lender or whomever, agrees to forgive a debt if the borrower agrees to pay off a portion, usually on a condensed payment schedule.
On the subject of debt forgiveness, the Wall Street Journal reports that many people will be annoyed to hear the government considers that income. It is technically a bonus towards petty cash and income, which means it is taxable.
The lenders will then give form 1099 C to the borrower, so they can report it on their taxes during the year.
Consists of large mortgage loans
Debt forgiveness taxes can be a real kick in the nether regions when linked to home loans. When a home loan lender forecloses on a house and either forgives the debt, reduces the principle or agrees to a short sale, the fair industry value and forgiven debt for the home have to be reported on a 1099 C. However, the tax on it, for some, is exempted for the moment.
The Mortgage Forgiveness Debt Relief Act is a law that the government passed in 2007 that allows certain homeowners who get foreclosed on to keep away from the taxes on the debt. CBS explained that people who were in the Home Affordable Modification Program, or HAMP, were able to avoid the tax.
However, according to the Wall Street Journal, it only applies to mortgage loans to "buy, build or improve" a primary residence. Second-home mortgages are not eligible, so in your yuppie faces.
Last year expiration
That law was set to expire last year, but was saved in the "fiscal cliff" negotiations. However, it will lapse before 2014, unless extended. That said, as CBS points out, debt forgiveness for home loans can be claimed over a period of three years or all it once - forgiven homeowners who have not claimed it yet should claim it all this year and reap the benefit of the exemption, if applicable.
More people are receiving debt forgiveness or debt cancellation from lenders than ever. According to Creditcards.com, just over 1 million 1099 C forms were filed with the IRS in 2003, rising to 2 million by 2006 and nearly 4 million in 2010. It's projected that in 2013, the Internal Revenue Service will receive close to 6.5 million debt cancellation tax forms.
Government just views way to get more taxes
Millions of people breathe sighs of relief each year when granted debt forgiveness. Also called debt relief, debt cancellation, it's where a loans lender of some sort, like a credit card business, mortgage lender or whomever, agrees to forgive a debt if the borrower agrees to pay off a portion, usually on a condensed payment schedule.
On the subject of debt forgiveness, the Wall Street Journal reports that many people will be annoyed to hear the government considers that income. It is technically a bonus towards petty cash and income, which means it is taxable.
The lenders will then give form 1099 C to the borrower, so they can report it on their taxes during the year.
Consists of large mortgage loans
Debt forgiveness taxes can be a real kick in the nether regions when linked to home loans. When a home loan lender forecloses on a house and either forgives the debt, reduces the principle or agrees to a short sale, the fair industry value and forgiven debt for the home have to be reported on a 1099 C. However, the tax on it, for some, is exempted for the moment.
The Mortgage Forgiveness Debt Relief Act is a law that the government passed in 2007 that allows certain homeowners who get foreclosed on to keep away from the taxes on the debt. CBS explained that people who were in the Home Affordable Modification Program, or HAMP, were able to avoid the tax.
However, according to the Wall Street Journal, it only applies to mortgage loans to "buy, build or improve" a primary residence. Second-home mortgages are not eligible, so in your yuppie faces.
Last year expiration
That law was set to expire last year, but was saved in the "fiscal cliff" negotiations. However, it will lapse before 2014, unless extended. That said, as CBS points out, debt forgiveness for home loans can be claimed over a period of three years or all it once - forgiven homeowners who have not claimed it yet should claim it all this year and reap the benefit of the exemption, if applicable.
More people are receiving debt forgiveness or debt cancellation from lenders than ever. According to Creditcards.com, just over 1 million 1099 C forms were filed with the IRS in 2003, rising to 2 million by 2006 and nearly 4 million in 2010. It's projected that in 2013, the Internal Revenue Service will receive close to 6.5 million debt cancellation tax forms.
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