Home | Tax Blog | Tax Evaluation | Resources | Common Tax Questions | Back Taxes | Contact Us

What to Do in Case of an Economic Downturn #2: Debt

August 24th

In this complex economic period, many Americans fear the affects that debt might have on their tax bills. Even further, personal debt can greatly increase the difficulty in paying taxes and lead to tax debt.  Here are a number of potential scenarios related to debt issues you may face during an economic downturn, and some helpful tips for reconciling these problems with your taxes.

 Tax Issues

1. Losing a Home Through Foreclosure. Unfortunately, these days many people are losing their homes. The good news is that, under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers can generally exclude income from the discharge of debt on their principal residence or mortgage restructuring. This exception does not, however, apply to second homes or vacation properties. In some cases, it may be possible to file an amended tax return for previous tax years.

2. Debt Forgiveness. The impact of debt forgiveness or cancellation on your taxes depends on your individual facts and circumstances. Generally, if you borrow money from a commercial lender, and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. The lender is usually required to report the amount to the IRS and to you on a Form 1099-C, Cancellation of Debt. However, there are several exceptions in which cancelled debt may not be taxable, such as insolvency or bankruptcy.

3. Primary Residence is Sold at a Loss. Given the crash in the property market, it is quite common at present for properties to be sold at a loss. Unfortunately, any losses from the sale of personal-use property, including primary residences or items such as a car, are not tax deductible. Such losses are also not eligible for the capital gains loss deduction of up to $3,000 annually.


Subscribe Now

Follow on FaceBook
News & Events
Monday, August 01, 2011

We are excited to launch our new site LeeTaxHelp.com.
Monday, September 05, 2011

If you think you might be need the advice of a Dallas Bankruptcy Attorney you can view on sister site at http://leebankruptcy.com
Back Taxes (5) General Tax Information (65) News (39) Payroll Taxes (5) Tax audit (10) Tax Debts (3) Tax deductions (16) Tax Fraud (4) Tax Laws (14) Tax Liens (10) Tax payment plans (14) Tax programs (21) Tax Scams (6) Uncategorized (2)
Recent Posts
Advantages of Using a Tax Debt Lawyer
Tax Debt Relief In 2014
Tax Debt Installment Agreements
Understanding the Five Tax Debt Strategies
Back Taxes: What You Can Do
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011