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eddahopkins · Joined: 22 Dec 2008 Posts: 4 2.72 Dollars($)

I am estimating my net worth to determine my tax consequence (per IRS cancellation debt guidelines).

Is retirement an element to include to determine your net worth for debt forgiveness tax act. I understood the retirement in one asset excluded from judgment, collection & bankruptcy purposes purposes.

Under IRS rules, you can exempt canceled debts using the liquidity or qualified residential rule . For it to be a qualified cancel debt, you must live in the property. I estimate that liquidity is best for me because total the cancellation amount would be $178K, $155 for vacant lot mortgage and $62K for residential loan. However the $62K does not qualified because this amount accumulated as refinance of my residence loan cash out to purchase the vacant lot. Therefore, the total $178K would be taxable,unless I exclude under liquidity. My newt work, without considering retirement is negative ($95K). In this case, I would have to pay taxes under the liquidity exemption on $83K.

jameshogg · Posted: Mon Dec 22, 2008 9:48 pm Post subject:

Hi eddahopkins,

Tax relief on canceled debt depends upon certain conditions. According to the conditions, the debt should have been taken in order to buy, build or improve a principal residence. Tax relief is not applicable in case of second homes, rental property or vacations homes. The tax relief is limited to an amount of $2 million. The forgiven debt related to cash-out refinance or home equity loan is sub-divided into the amounts used for buying, building, improving home and those used for tuition, payments of other debts, etc. The allowable portion for tax break is then calculated. I don't think retirement will be included in the tax relief purposes.

In order to calculate the taxes or how much tax relief you can get, you should consult an accountant or a tax adviser.

Thanks

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How to determine new worth for tax relief purposes