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    Cancellation of Debt

    Got an issue. A client has a loan modification CODI. The amount of discharged is $86,104.85. The fair market value of the property is $177,000. He paid $99,500 for the property back on 11-20-1999. The client is personally liable. His insolvency is $40,870. What portion of the CODI will be taxable on Form 1040? Thanks.

    #2
    Debt cancellation-mortgage debt foregiveness act

    1. The issue you raised may be covered by the Mortgage Debt Forgiveness Act.
    2. On its web site, IRS has some decent information.
    3. IRS publication 4681 and IR-2008-17 should be consulted.
    4. You need to take your specific facts and review the IRS information to provide the taxpayer with appropriate advice on how to treat their particular situation.
    Friends double; family triple. Don't buy an audit for yourself. If someone has to go to jail make sure it is the client. Remember it is only taxes, nothing important.

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      #3
      Originally posted by Thad View Post
      Got an issue. A client has a loan modification CODI. The amount of discharged is $86,104.85. The fair market value of the property is $177,000. He paid $99,500 for the property back on 11-20-1999. The client is personally liable. His insolvency is $40,870. What portion of the CODI will be taxable on Form 1040? Thanks.
      Being taxpayer purchased home in 1999, it would appear that he has refi'd through the years and taken equity out. The question would be for what purpose was the proceeds used? The exclusion of Qualified Principal Residence Debt only applies to acquisition debt.

      Peggy Sioux

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