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Is the house worth less than what you paid for it? From what I understand, if the foreclosure sale price results in a loss from your original purchase price, that loss can offset income on the 1099c.
If you end up with a big tax bill, you can negotiate a payment plan with the IRS instead of using your IRA.
Yes, the loss in value will help but even without a deficiency judgement I think I'll be dealing with the IRS for years to come. Do you have any knowledge of how aggressive the IRS is when they see enough money in a SEP-IRA to pay past due tax generated by 1099-c income? Their website indicates that they don't seize retirement accounts unless there is evidence of fraud, which will not be the case with me, but as I'm nearing retirement, I'm wondering if they will accept a payment plan or negotiate a lump sum at a discount if they know the money is available in the SEP-IRA...I really don't want to incur more income tax to pay off a huge tax bill generated by the 1099-c forgiveness of debt if there is any alternative.
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