310.376.9865
A large number of homeowners have filed a Chapter 13 in order to Strip the 2nd Mortgage from their home.
The lender/banks are now sending out a 1099-C Cancellation of Debt form. This IRS form tells the IRS that the lender/bank has cancelled this debt, the lender/bank reports this as lost income to the IRS, of course the IRS still wants to collect this income. Who does IRS looked to? Well, the IRS figures since you no longer have to pay the full amount of this debt, the IRS treas this as your gained income, and that you should pay income taxes on this gain.
So you filed Chapter 13 bankruptcy, and now you receive a 1099-C from the lender/bank indicating they have cancelled a $100,000 debt (the $100,000 amount owed for our 2nd mortgage, which you have stripped in bankruptcy), and this is considered your gained income by the IRS. However, just because you receive this form, does not mean you have to report it as income or pay taxes on the amount reported on the 1099-C.
Fortunately, there is a solution. You will want your tax preparer to assist you in completing IRS Form 982.
- If you are insolvent, then you are qualified to file a 1099-C.
- If your home is a qualified principal residence, this exception might be applicable.
- Since you have filed bankruptcy prior to the forgiveness of the debt, it still could be argued that the bankruptcy exception applies, subject to a later amendment of your tax return if the bankruptcy is dismissed with no discharge. Of course if this happens, you would probably then be insolvent.
- Law Offices MJ Mann Bankruptcy Attorney
- 2706 Artesia Blvd, Suite BK
- Redondo Beach, CA 90278
- 310.376.9865
