Mortgage Forgiveness Debt Relief Act of 2007

[peggysioux]

Insolvency

Question regarding the insolvency worksheet - say taxpayer received a 1099-A in 2009, but no 1099-C until 2010. Then, wouldn't the snapshot be right before the cancellation of debt due to the 1099-C and not the foreclosure in 2009?

[SFBOB]

Pub 4681 Page 4

States "Do not include a cancelled debt in income to the extent that you were insolvent immediately before the cancellation". I have seen the date on the 1099A to be the same as the 1099C. Often times the 1099A and 1099C may be issued at the same time. It is not unusual for a taxpayer to change his or her address and not receive forwarded mail after one year resulting in the loss of a 1099 form.. The best way to be sure that all forms have been received; is to order an IRS transcript as soon as available for the tax year you are considering. I would never exclude canceled debt and report on form 982 with only a 1099A in hand. In closing if you do not have Pub 4681, download it or order today. IT IS A MUST HAVE PUB.

[peggysioux]

Insolvency

But taxpayer is trying to prove insolvency due to the 1099-C that was issued in 2010 and a large portion is taxable due to taxpayer refi'ing and using for things other than the home so again, I ask, wouldn't the "snapshot" be right before issuing of 1099-C rather than the foreclosure in 2009? In 2009 when 1099-A was issued and marked "yes" for taxpayer being liable, taxpayer does not know if lender is going to try to collect or cancel debt.

[SFBOB]

2009 1099A Resulted In A Sale

Have you read the Pub 4681? This explains the transactions real well. The 2009 sale likely resulted in a large loss and a possible refund.Sale price would have been the FMV and most likely much lowered than the basis. The 1099C that may follow will result in a balance due unless the taxpayer is insolvent based upon the date the debt is cancelled. If the box 5 not liable is checked on the 1099C there is no cancellation of debt and the 1099C should not have been issued. These boxes are often checked wrong by the bank.The only escape from non qualified debt is insolvency. Why shouldnt the taxpayer pay the piper; when they used the loan proceeds in Las Vegas Have a good evening every one.

[SFBOB]

Sorry Forgot the 1099A was principal Residense and no loss on the Sale.

$2,000,000 principal residence debt forgiveness does not appy on non quaified debt. It is taxable if box 5 is checked liable. Sorry I overlook original question. Thought the property was rental.