1099C and insolvency

[nothumbs24]

If you own a home can you still fill out 982 insolvency form? I know if you receive a 1099C from a creditor, you have to declare that as income. But I'm wondering if you can be considered insolvent if your only means of income is social security, you are over 68 years old, you own a home, but you have no other significant assets and you haven't had to file an IRS return for years because of your low income.

Also, this home has a reverse mortgage on it, so it has very little equity. I'd like to know if this person could qualify as "insolvent" by IRS standards.

[jimmcg]

Insolvency is an excess of liabilities over assets. Preapare a statement of financial condition immediately before the debt cancellation and one immediately after the debt cancellation and see what the numbers say. I am sure there is an example in The Tax Book somewhere. As a furthur aside there is presently a bill meandering through Congress which would exclude debt cancellation on a primary residence for a solvent taxpayer. Last I heard the chances were good it will pass this year (per Kiplinger) and also be retro to the begining of the year but don't bet the farm on it .

[BOB W]

Question>> If a parent co-signs a loan for a child and the child negotiates a payoff and the institution issues the 1099C to the parent who is not illiquid, is there any way around reporting the cancellation of debt on the parents return??????

[jimmcg]

Question>> If a parent co-signs a loan for a child and the child negotiates a payoff and the institution issues the 1099C to the parent who is not illiquid, is there any way around reporting the cancellation of debt on the parents return??????

That's an interesting question. My understanding is that under state law (Ohio) upon the default of the original primary debtor the co-signer then steps in the shoes of the primary debtor and legally becomes the primary debtor and assumes all obligations of the primary debtor. Therefore unless you can make the financial institution an offor they cannot refuse to put the 1099C in the SS# of the child (everything is negoitable) you may not have a choice. Let's see what others may input.

[Bertandbull]

If you own a home can you still fill out 982 insolvency form? I know if you receive a 1099C from a creditor, you have to declare that as income. But I'm wondering if you can be considered insolvent if your only means of income is social security, you are over 68 years old, you own a home, but you have no other significant assets and you haven't had to file an IRS return for years because of your low income.

Also, this home has a reverse mortgage on it, so it has very little equity. I'd like to know if this person could qualify as "insolvent" by IRS standards.

When you take out a reverse mortgage, the loan is based on the equity you already have in your home. That's because a reverse mortgage is a non-recourse loan, which means that your home is the lender's only recourse to collect on the debt. None of your other assets are affected.