Most financially stressed consumers in the US are unaware of the various laws that have come into effect to protect and safeguard the rights of the US consumers. As the people in the US are always going through some or the other financial liabilities, the US government is always taking some steps that are helping them get back a grip on their finances. The sluggish state of the US economy is also getting the US citizens in serious financial trouble. If you have incurred a huge amount of tax debts, and you’re worried about ‘how do I consolidate my debts’, you need not fret. As a homeowner who is facing a foreclosure, the Mortgage Debt relief Act that had been enacted in 2007 helps the income taxpayers reduce a part of their debt amount and become debt free as soon as possible.
Most homeowners who fall back on their monthly mortgage payments either choose to go through a foreclosure or simply walk away from their mortgages. One of the main financial concerns such people have is their unpaid tax liabilities that has posed to be a serious financial problem. Fortunately there are some laws for this category of people who may qualify to get a part of their debt forgiven.
What is cancellation of debt?
As you borrow a home loan lender and your lender forgives a portion of your debt as you’re unable to make them due to some financial hardship, you need to include this amount in your taxable income as you need not make further repayments. For instance, you have taken out a home loan; you need not include it within your taxable income as you’re obligated to repay the lender. But, on the contrary, when you save the money this constitutes a part of your income as you have earned it. The IRS will charge taxes on that given amount. The lending company is supposed to report the respective lender and the IRS about the amount of forgiven debt through a Form 1099-C. This amount is known as cancellation of debt and it helps taxpayers who are probably facing a foreclosure.
Is the cancellation of debt income always subject to income tax?
Well, the answer to his question depends on various circumstances. It is not that cancellation of debt income is always taxable. The situations when it is not subject to tax are:
* Debts that have been discharged through bankruptcy are never subject to tax.
* If you can prove that you were insolvent during the debt cancellation, your debts would not be subject to tax.
* In case of non-recourse loan where the only option of the lender, in case of a default is to repossess the property, the debts are also not subject to tax.
Therefore, if you’re a taxpayer who is close to facing a foreclosure, you can seek the help of this debt relief act that is designed to reduce the debt burden of most homeowners in the US. Don’t spend sleepless nights thinking ‘how do I consolidate my debts’ as you can easily emerge debt free by resorting to the options given by the US government.
