Cancelled Debt May be Considered Taxable Income by the IRS

Recieved this Blog from Realtor friend. If you are considering Shortsale, BK, Forclosure know your options  and how it will effect you in the future.


July 2012 Tax Newsletter



With the recent economic downturns experienced by many taxpayers, there is a tax concept that is very important: cancellation of debt. You would think that the cancellation of debt by a credit card company or mortgage company would be a good thing for the taxpayer. And it can be, but it can also be considered taxable income by the IRS. Here is a quick review of various debt cancellation situations.
* Consumer debt
If you have gone through some type of credit "workout" program on consumer debt, it's likely that some of your debt has been cancelled. If that is the case, be prepared to receive IRS Form 1099-C representing the amount of debt cancelled. The IRS considers that amount taxable income to you, and they expect to see it reported on your tax return. The exception is if you file for bankruptcy. With bankruptcy, generally the debt cancelled is not taxable.
Even if you are not legally bankrupt, you might be technically insolvent (where your liabilities exceed your assets). If this is the case, you can exclude your debt cancellation income by reporting your financial condition and filing IRS Form 982 with your tax return.
* Primary home
If your home is "short" sold or foreclosed and the lender receives less than the total amount of the outstanding loan, you can also expect that amount of debt cancellation to be reported to you and the IRS. But special rules allow you to exclude up to $2 million in cancellation income in many circumstances. You will again need to complete IRS Form 982, but the exclusion from taxable income brought about by the debt cancellation on your primary residence is incredibly liberal. So make sure to take advantage of these rules should they apply to you.
* Second home, rental property, investment property, business property
The rules for debt cancellation on second homes, rental property, and investment or business property can be extremely complicated. Generally speaking, the new laws that cover debt cancellation don't apply to these properties, and the IRS considers any debt cancellation income taxable. Nevertheless, given your cost of these properties, your financial condition, and the amount of debt cancelled, it's still possible to have this debt cancellation income taxed at a preferred capital gains rate, or even considered not taxable at all.
Be aware that many of the special debt cancellation provisions are set to expire at the end of 2012.
If you're unsure as to how debt cancellation affects you, contact your tax advisor (or ask us for a referral) to review your situation and determine how much, if any, cancelled debt will be taxable income to you.
Posted by Natalie Neith at 14:44 No comments:  Email ThisBlogThis!Share to TwitterShare to Facebook

Fire Prevention Fee

Property owners within the State Responsibility Area (SRA) will soon be receiving a bill requiring payment up to $150 per habitable structure for state fire prevention services.    In July of 2011, the Governor signed legislation (ABX1 29) requiring affected property owners to pay a fee for state fire prevention services in their area. The fee is applied to all habitable structures within the SRA.  The SRA is the area of the state where the State of California is financially responsible for the prevention and suppression of wildfires.  SRA does not include lands within city boundaries or in federal ownership. To see if your property is within the SRA, use the State Responsibility Area Viewer website: http://www.firepreventionfee.

org/sraviewer.php
The fee is levied at the rate of $150 per habitable structure, which is defined as a building that can be occupied for residential use. Owners of habitable structures who are also within the boundaries of a local fire protection agency will receive a reduction of $35 per habitable structure.
This fee will fund a variety of important fire prevention services within the SRA including brush clearance and activities to improve forest health so the forest can better withstand wildfire.

Note: The transfer of title does not trigger the fee.  The notice of the Fire Prevention Fee has been included in Disclosure Source NHD Reports since September 2011.
For more information about the Fire Prevention Fee visit: 

http://firepreventionfee.org/
sra_faqs.php
and
http://www.homewarranty.com/
pdfs/Fire_Prevention_Fee_Program.pdf

My First Triathalon

  Well I have completed my list of fitness activities I wanted to complete by my 50th birthday. The triathlon was 3 weeks after my 50th because of a knee injury, but I completed it.
On my list was a 5K, 10K, 1/2 marathon (13.1 miles) and a triathlon. 5K ran this with my wife and Jaime (niece) Santa Anita in April, 10K in the Antelope Valley in May, Half Marathon in June in Ventura along the beach time 2 hours 21 mins. The tri which consisted of 500 meter swim, 10 mile bike ride and 3.1 run. time 2hrs.5 secs. I loved the 1/2 marathon, the tri was brutal!!!! The swim which I thought would be a piece of cake. Huh..150 guys swimming all together. Right off the bat I got kicked in the chest and face..Hey no one told me about that, then A guy used me as a starting block, swam over my back and used my head as a push off platform. The run ......The worst run ever, with the temp at 102, hills, I wanted to stop... But I pushed on, My time for the miles was bad. 14 min miles My usual is 10:40 mins.

  My wife who lets me know all the time she is not fifty yet (5 weeks and counting)also did the tri. I am very proud of her. I think she is also proud of herself. She had herself convinced she couldn't do it,but she did..... Hmmm anyone up for a full Marathon?????