Another Cancellation of Debt question

[Brian EA]

Taxpayer had modification of loan done on his mortgage. The lender sent him a 1099-C with $6000 in box 2 and including no interest.
Based on the IRS tax assistant this amount is deemed taxable. I can file form 982 and exclude this amount from income.
Would this be the right way to handle this situation?
Thanks
brian

[mastertaxguy]

1099-c/insolvent

1. Form 982 is helpful IF the taxpayer(S) was/were insolvent on the date of the loan modification. If not, they will still owe tax on the 1099-C amount.
2. Key fact is what were their assets immediately before the mortgage modification, and what were their debts immediately before the loan modification.
3. Must consider all of their assets (sort of like an OIC/Collection Statement with IRS), including the face value of retirement accounts and the like.

[David1980]

Principal residence? If it's qualified principal residence indebtedness just use that exclusion. The debt must have been used to buy/build/substantially improve the main home. So the most common reason it wouldn't qualify is if they took out an equity loan for other purposes.

[ddoshan]

Correct... a lot of people have refinanced over the last 5-6 years and took out extra cash. If the balance of their loan was say 100K at one time and they refinanced for say 120K then 20K would not be eligible for the exclusion, or something like that. Just have to get all the facts.

[taxmom34]

at $6000 I wouldn't think it was a mortgage. looks like credit card debt =no exclusion sorry didn't read first part of OP, just saw the $6000 and figured that was awful low for a mortgage.

[joanmcq]

If you are using QPRI and still own the home, you have to reduce the basis of the home by the amount of debt excluded.

[Brian EA]

It is the taxpayer's personal residence and no equity was taken out. All he did was modified his mortgage and the bank sent him the 1099C.