2011/12 Income Tax - Joint 13 with two primary residences and Mortgage Forgiveness?

[chicagoed195]

You should always strive to file a tax return that contains all of the deductions to which you are entitled. If you are concerned about refunds, then you should manage your withholding to approximate what your tax liability is expected to be. Seems to me that it makes absolutely no sense to give money to the Federal and state government to avoid giving it to the trustee. This is especially true in the instance where you are in a 100% plan, because if you overestimate your taxes and the trustee requires you to pay over the refund, it may very well shorten your plan.

[markinva]

On the other hand.. If I will be in a 100% 5 yr plan and the trustee will be taking my refunds, does that refund money goes into the pot that is paid out to the creditors? If there is a possibility that I could complete the plan payments sooner, then I guess I DO need to look at maximizing deductions, credits, etc. so the refund for 2011 will be as large as possible.

[markinva]

Iam... Thanks - Just got TurboTax in the mail today - will just have to work thru the Joint/Separate scenarios wrt to the tax hits. Since the greedy trustee here will want any/all potential refunds, no real incentive to totally maximize my deductions for the next five years. Paying the trustee will beat paying the evil CC banks/companies any day!

[IamOld]

Def. OK with the surrender - House is getting old - just had to shell out 700.00 today for heat pump repair. Prop will need re-roofing, windows, flooring, etc. soon. Even in NVA, close to DC, the real estate market just ain't that great. House has become a money pit. Great old movie, btw. ("The Money Pit") Thanks.

In that instance then good! And you do not have to worry about anything discharged through BK re taxes!!!

[markinva]

Def. OK with the surrender - House is getting old - just had to shell out 700.00 today for heat pump repair. Prop will need re-roofing, windows, flooring, etc. soon. Even in NVA, close to DC, the real estate market just ain't that great. House has become a money pit. Great old movie, btw. ("The Money Pit") Thanks.

[IamOld]

markinva, that's a complicated situation...are you first of all "ok" with giving up the house in N VA?? If yes, I believe that the mort forgiveness act is not relevant - if the mort is discharged in a BK (you surrender the house in N VA, etc.) it's not a taxable even in any respect anyway.

[markinva]

I beg everyone’s patience with my incessant questions. My 341 was extended 6 months – waiting is maddening. My situation in VA follows:
Primary residence in N VA for 30 plus years for both of us is now only my primary residence.
Spouse moved to our second home in Southern VA in Dec 2010, to take a better paying job. She changed her driver license address to the second home address – it became her primary.
I stayed in the former joint primary address but was downsized into retirement in July 2011. Looked for work. Not working to date, little chance of finding work so far. I remain in the N VA house.
Filed jointly for 13 in Oct 2011. Proposed 25% – Trustee is seeking 100% due to incomes and is demanding surrender of my “primary”, to increase DMI, of course. 341 continued to March 2012. Almost certain that we will end up with a 100% plan, and that is OK – I want to get on with my life!
My primary residence is underwater – cannot do a strip of the second (held by a credit union) Will surrender that house in March 2012. Potential deficiency here of 125 – 150K
Spouse's primary also has a first and second (both held by the same credit union that also holds the second on my primary residence – hoping they do not pull the cross-collateralization trick on us.) My attorney moved to strip the second (25K) on spouse’s primary. 25K would be the deficiency on this property, I guess. The marriage will stay intact and will I be moving to the spouse’s primary residence after the March 2012 continued 341/surrender of my “primary” residence.
So, with that background and for income tax planning and surviving Chap 13 payment plan purposes, I’m trying to figure out if the Mortgage Forgiveness Act will apply to my primary, spouses primary, or both, and if we should plan on filing joint or separate file separate tax returns for 2011 and 2012.
Previously have filed joint returns for many years. 2011 was a banner year for income but 2012 will show a large decrease in joint income. A few CPAs I’ve spoken with were not willing to touch this question with a ten foot pole, btw. Thanks for reading this; any advice, comments would be greatly appreciated.