Discharge (or Cancellation) of Debt (Part 4 of 4)

Discharge (or Cancellation) of Debt (Part 4 of 4)

The Other 4 Exceptions to the Discharge of Debt as Gross Income

Qualified Real Property Debt.  IRC § 108(a)(1)(D) and (c) allows a non-corporate taxpayer to elect to exclude income arising from the “cancellation of qualified real property business debt.”  The taxpayer must reduce the basis of depreciable real property by the amount excluded. IRC §108(c)(1)(A). Treas. Reg. § 1.1017-1(c) provides rules to reduce first the basis of the qualifying real property and then to other real property held by the taxpayer in a trade/business. IRC § 108(c)(2)(A) limits the exclusion to the amount by which the outstanding principal amount of debt before the cancellation exceeds the current market value minus the principal amount of any other qualified real property debt secured by the property.  The debt must have been used to acquire, construct, reconstruct, or substantially improve the real property. IRC §108(c)(4). The taxpayer must file IRS Form 982 with his/her tax return for the calendar year in which the discharge occurs (identifiable event). IRC §108(d)(9)(A).

Insolvency.  No income is include in the taxpayer’s income by reason of cancellation to debt to the extent the taxpayer is insolvent. IRC § 108(a) (3).  Insolvent means that at the time of the debt forgiveness the taxpayer’s liabilities exceeded the fair market value of the taxpayer’s assets. The amount excluded from income by reason of insolvency cannot exceed the amount by which the taxpayer is insolvent. A taxpayer made solvent by the debt forgiveness recognizes income only to the extent the taxpayer is made solvent. IRC §108(d) (3).

Debt Discharged in Qualified Farm Indebtedness.  See IRC § 108(a)(g).

Debt Discharged in Bankruptcy. See IRC § 108(a)(1)(A).

Please call Arlington Heights Lawyer, Robert S. Thomas if you have received a 1099 (c) or a 1099 (a) after experiencing a short-sale, foreclosure, or loan modification on your primary house.

LAW OFFICE OF ROBERT S THOMAS

1655 N Arlington Heights Rd, Suite 300West

Arlington Heights IL 60004

847-392-5893 phone
info@attorneyrobertthomas.com

For any questions or concerns, please feel free to contact the law office of Arlington Heights attorney Robert S. Thomas.  To read Discharge of Debt part one, two or three click on each link.