Debt forgiveness is an excellent thing. A loan provider that chooses to forgive some part of one's loans is good, but it comes with a caveat. The problem is that the pardoned debt is treated and taxed as income by the IRS, which will hurt come tax time.
Government just sees way to get more taxes
Millions of people breathe sighs of relief each year when granted debt forgiveness. Also called debt relief, debt cancellation, it's where a loans lender of some sort, like a credit card business, home loan lender or whomever, agrees to forgive a debt if the borrower agrees to pay off a portion, usually on a condensed payment schedule.
Debt forgiveness is really taxable income though because it is recognized as an increase in someone's income, according to the Wall Street Journal. People getting debt forgiveness this year will be mad when they find out they have to pay additional taxes.
Ergo, it's taxable and forgiving lenders have to give a tax form, a 1099 C, that borrowers have to report on tax forms.
Consists of large home loans
Occasionally, a mortgage that is forgiven is exempt from taxes, but much of the time, it is not. In fact, debt forgiveness could be really annoying on the subject of forgiveness of a home loan. A 1099 C has to be used any time the lender agrees to lower principle or agrees to a short sale.
In 2007, the government passed a law exempting certain foreclosed-on homeowners from a portion of this debt. The law, the Home loan Forgiveness Debt Relief Act, also extends, according to CBS, to people who participated or are participating in the Home Affordable Modification Program or HAMP, who received a principle deduction or other modification that would otherwise be topic to the tax.
It does not contain any second-home mortgage loans, though it does contain all primary residences, according to the Wall Street Journal.
Last year termination
When the fiscal cliff negotiations were occurring, it integrated the program. It will still expire in 2014 unless extended though. Homeowners should take advantage of claiming the forgiven home loan right now if they can to avoid paying taxes on it. Forgiven homeowners do have three years to pay the taxes, so at least there is there.
More people are receiving debt forgiveness or debt cancellation from lenders than ever. According to Creditcards.com, just over 1 million 1099 C forms were filed with the IRS in 2003, increasing to 2 million by 2006 and nearly 4 million in 2010. It's projected that in 2013, the Internal Revenue Service will get close to 6.5 million debt cancellation tax forms.
Government just sees way to get more taxes
Millions of people breathe sighs of relief each year when granted debt forgiveness. Also called debt relief, debt cancellation, it's where a loans lender of some sort, like a credit card business, home loan lender or whomever, agrees to forgive a debt if the borrower agrees to pay off a portion, usually on a condensed payment schedule.
Debt forgiveness is really taxable income though because it is recognized as an increase in someone's income, according to the Wall Street Journal. People getting debt forgiveness this year will be mad when they find out they have to pay additional taxes.
Ergo, it's taxable and forgiving lenders have to give a tax form, a 1099 C, that borrowers have to report on tax forms.
Consists of large home loans
Occasionally, a mortgage that is forgiven is exempt from taxes, but much of the time, it is not. In fact, debt forgiveness could be really annoying on the subject of forgiveness of a home loan. A 1099 C has to be used any time the lender agrees to lower principle or agrees to a short sale.
In 2007, the government passed a law exempting certain foreclosed-on homeowners from a portion of this debt. The law, the Home loan Forgiveness Debt Relief Act, also extends, according to CBS, to people who participated or are participating in the Home Affordable Modification Program or HAMP, who received a principle deduction or other modification that would otherwise be topic to the tax.
It does not contain any second-home mortgage loans, though it does contain all primary residences, according to the Wall Street Journal.
Last year termination
When the fiscal cliff negotiations were occurring, it integrated the program. It will still expire in 2014 unless extended though. Homeowners should take advantage of claiming the forgiven home loan right now if they can to avoid paying taxes on it. Forgiven homeowners do have three years to pay the taxes, so at least there is there.
More people are receiving debt forgiveness or debt cancellation from lenders than ever. According to Creditcards.com, just over 1 million 1099 C forms were filed with the IRS in 2003, increasing to 2 million by 2006 and nearly 4 million in 2010. It's projected that in 2013, the Internal Revenue Service will get close to 6.5 million debt cancellation tax forms.
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