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 irizarrymarilyn
Joined: 27 Oct 2007
Posts: 7
4.59 Dollars($)
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 Posted: Thu Nov 15, 2007 2:54 pm Post subject: Insolvency and Short Sale Tax Consequences |
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Hi, I was told that if you primary residence short sales, that you may be able to not have to pay the taxes for the difference if you
claim insolvency on your taxes. What exactly is this about?So scared of the tax consequences of the short sale. Thanks. |
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larry
Joined: 27 Jun 2007
Posts: 3307
470.31 Dollars($)
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| Posted: Thu Nov 15, 2007 11:15 pm Post subject: |
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Hi Marilyn,
If you can prove that you are insolvent, it may be that you need not to pay tax on the difference of the amount but it depends on the circumstances. That means your liabilities exceeds from the fair market value. So it is possible that of your forgiven debt is not taxable or may be only a portion of it is counted as income.
Thanks,
Larry |
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jenkin7
Joined: 04 Jun 2007
Posts: 939
140.77 Dollars($)
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| Posted: Fri Nov 16, 2007 12:09 am Post subject: |
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Hello Marilyn,
If your liabilities exceed your assets then you may claim insolvency and your unpaid debt may not be considered taxable. But you have to prove your insolvency to the IRS at the time of filing tax returns.
If the Mortgage Forgiveness Debt Relief Act of 2007 is passed as a law then this tax on forgiven debt will be eliminated for a short sale of primary residence. |
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terry jones
Guest
0.10 Dollars($)
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| Posted: Fri Nov 16, 2007 10:32 am Post subject: |
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This is to Larry:
"it may be that you need not to pay tax on the difference of the amount but it depends on the circumstances."
what do you mean by amount here?
"So it is possible that of your forgiven debt is not taxable or may be only a portion of it is counted as income."
I don't quite understand what you are trying to say here? |
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gabriel
Guest
0.10 Dollars($)
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| Posted: Fri Nov 16, 2007 10:36 am Post subject: |
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| jenkins, you mean if i prove i'm insolvent, i need not pay taxes on the forgiven debt. But if laws come into being with the declaration that one need not pay tax on forgiven debt, then there's no need to porve insolvency, isn't it? |
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larry
Joined: 27 Jun 2007
Posts: 3307
470.31 Dollars($)
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| Posted: Fri Nov 16, 2007 10:30 pm Post subject: |
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Hi Terry,
Welcome to this forum.
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"it may be that you need not to pay tax on the difference of the amount but it depends on the circumstances." |
I wanted to say here if you can prove that you are insolvent then you need not to pay taxes on your forgiven debts. But it depends upon circumstances. Say your forgiven debt is $40,000 and if your total asset amount at that time is $0. So you need not to pay any taxes on $40,000. But if your total asset amount is $12,000, then you have to pay taxes on that $ 12,000 and if your total asset is worth more than $40,000 then you have to pay tax on that total $40,000.
Hope it is clear to you now. Feel free to ask if you have anymore questions.
Thanks,
Larry |
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jenkin7
Joined: 04 Jun 2007
Posts: 939
140.77 Dollars($)
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| Posted: Mon Nov 26, 2007 9:35 pm Post subject: |
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Hello Gabriel,
Yes, you are correct. If the Mortgage Forgiveness Debt Relief Act passes as a law then there is no need to prove insolvency. The tax that you have to pay on the forgiven debt will be eliminated automatically by this law. |
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