1098 and Bk

[HOMEBODY]

if a mortgage company is reducing the principal on your loan through modification and the loan was not affirmed during BK 3 years ago.. do you have to report this loan forgiveness when you file taxes?

thanks

[tobee43]

only if the bank issues you the 1099. otherwise wait, many times people never get one at all. however, if you filed bk and listed your mortgage in that process and it was discharged with the bk, you don't have to ever claim the banks loss. again, that's when filed, listed, the mortgage and are discharged.

[justbroke]

There was a program that would remove the tax penalty on this. You would receive a 1099-C (Forgiveness of Debt) and would need to account for this on your taxes. It was the Mortgage Forgiveness Relief Act of 2007. I believe it ended last year, but I can't be certain.

If you do receive any 1099-C from a creditor, you should really consult a tax specialist. If you had filed bankruptcy (and discharged the underlying debt in that bankruptcy) or can prove insolvency at the time of forgiveness, you may be able to use an IRS Form 982 to remove the tax on the forgiven debt. There may also be other ways to avoid paying the tax, but I'm no tax expert and do not offer tax advice... other than to seek tax advice from a professional.

[bcohen]

If you discharged the debt in bankruptcy, then by definition, the creditor cannot "forgive" it, so no taxes are owed. It is only when a lender voluntarily chooses to forgive debt outside of bankruptcy that the canceled debt is considered "income" and may be taxable. If you receive a 1099-C, then you simply file a form 982 and check the box that the debt was discharged in bankruptcy. No taxes will be owed on the "forgiven" balance.

[justbroke]

bcohen, I re-read the original post and the poster mentioned "BK 3" which I assumed was a Chapter 13. In a Chapter 13, keeping property is akin to a reaffirmation. So, this could e interesting and that is my concern. If the mortgage was modified during the Chapter 13, then the principle which was forgiven would have been discharged.