tax question

[inneed]

Do we have to claim discharge debt on the following years taxes as income?

[AngelinaCatHub]

I don't think so as bk was designed to give you a "new start" in life without pre existing bills. However let's say you have a house and the lender discounts your mortgage to a reasonable amount so you can keep the house, that I believe would issue a 1099. Anyone else chine in here? Let us both know if I'm correct. 'Hub

[rfassett]

Forgiven debt is not includable income to the extent that the taxpayer is insolvent. Bankruptcy is prima-facie evidence of insolvency. Taxpayers with forgiven debt outside of bankruptcy can also exclude the income if they can prove insolvency. For non-individual taxpayers, the debt forgiveness first reduces any tax benefit attributes of the taxpayer (e.g., nol's or credit carryforwards), then reduces any remaining basis of any of the taxpayers depreciable assets, and then reduces the basis of any non-depreciable assets (e.g., land), and then anything left over is included as income. So as is true with any tax question, there is no yes or no answer. It is always, "well, it depends".

Please understand that the above applies only to the federal income tax effect, your state or local taxing authorities may take a different approach.

Hope this helps!

[TEW]

nope

[Help!]

No. There is a possibility that you'll receive a 1099 for forgiven debt in error, though. We're anticipating one or two of these because several banks charged off and sold our debt before we filed. If this happens, don't panic... all you need to do is mail in IRS form 982.