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How to determine new worth for tax relief purposes

Posted on: 22nd Dec, 2008 07:45 am
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.
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
Posted on: 22nd Dec, 2008 08:48 pm
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