IRS Debt and possible refund

[berkeleygl]

Oh, and agreed about the depreciation while defaulting. Seems bizarre, but everyone tells me it is a legit deduction.

[HHM]

Be careful on taking additional depreciation. If the property is in default and there will be a foreclosure. You can still be hit with capital gains tax if you have adjusted your basis to such a degree that even the foreclosure sale amount would be greater than your current adjusted tax basis on that property.

Although not common, it does sometimes happen.

Real estate investor has had property for 10 years, and depreciates. Got hit by real estate depression and let's property go into foreclosure. The foreclosure sale amount is more than the adjusted basis, the real estate investor is liable for cap gains on the difference.

You need to determine you current, adjusted basis, for the property, is that amount more ore less than the probable market value of the property if more, not a problem (but you won't be able to claim the loss), if less, you have a cap gain issue.

[berkeleygl]

I didn't really understand most of what you said HHM, but when I showed it to my husband he nodded and said this wasn't a worry in our case. Something about the condo being worth way less than what we owe. But even so, wouldn't this only become an issue in the tax year in which it foreclosed? Since this won't be 2011, don't we just treat it as we normally do a rental property?

Thanks for giving me lots to think about and consider

[LadyInTheRed]

If we get a refund this year, will we be able to keep it (assuming that the trustee lets us),

Based on your user name, I assume we have the same trustee. Unless the plan requires you turn over refunds to the trustee, you should be able to keep the refund if the IRS pays it to you. Check with your attorney to be sure. But, my attorney says the trustee doesn't care about the refund. If she did, she'd probably require us to send copies of our tax returns to her each year.

[mountanddo]

So I am in a chapter 13 and owe about $500 to the IRS for taxes owed for 2009. They are in my plan. The plan is a zero percent payback as I will only be paying my attorney, the trustee and the back taxes. IF I should qualify for a refund, will the IRS take that and then my payments that were supposed to go to the back taxes get distributed to my unsecured creditors? How do you know if you get a refund if you have to give it to the trustee? Do they send you a letter or something? The trustee said nothing about giving up a refund should I get one or even giving her tax returns for filing while I am in chapter 13.

[LadyInTheRed]

So I am in a chapter 13 and owe about $500 to the IRS for taxes owed for 2009. They are in my plan. The plan is a zero percent payback as I will only be paying my attorney, the trustee and the back taxes. IF I should qualify for a refund, will the IRS take that and then my payments that were supposed to go to the back taxes get distributed to my unsecured creditors?

Based on the experiences of Flamingo and Tammygirl1 posted earlier in this thread, the IRS will not keep the refunds to pay taxes being paid in your plan.

How do you know if you get a refund if you have to give it to the trustee? Do they send you a letter or something? The trustee said nothing about giving up a refund should I get one or even giving her tax returns for filing while I am in chapter 13.

This depends on a couple of things. Your plan may provide that any refund (or a refund over a certain amount) be turned over to the trustee. If your plan doesn't require the refund be turned over, then the trustee may still require you to turn over a refund. It depends on local practices. The best way to know for sure is to ask your attorney.

[mountanddo]

Thanks LIR. I don't think I'm going to be asking my attorney anything since the concensus seems to be that you paid your attorney to see you through your 341 and nothing else. I'm not going to be incurring any more fees just to ask questions like this. If I get a refund I'll just put it in the bank I suppose.

[LadyInTheRed]

Thanks LIR. I don't think I'm going to be asking my attorney anything since the concensus seems to be that you paid your attorney to see you through your 341 and nothing else. I'm not going to be incurring any more fees just to ask questions like this. If I get a refund I'll just put it in the bank I suppose.

Part of your attorney's job is to make sure you understand your plan and your obligations during the plan. They shouldn't charge you to tell you whether you can keep your refunds. Call your attorney and tell him you have a question, but want to be sure he/she won't charge you extra for an answer. Also, check your fee agreement. In a Chap 13, it probably covers work through confirmation (assuming there is no AP), not the 341.

[Danglin]

Our 13 was filed exactly one year ago this month. At the time of filing, we owed the Feds $118,000 for TY 2000-2003. We filed our 2010 tax returns well in advance of our April 5th 2010 341 meeting. Our Federal refund for 2010 was $5200. We received a refund check from the Feds in early March for the entire $5200. The trustee didn't even request the money, so we kept it as our savings cushion.

The fact is, the IRS would need to request a relief from the automatic stay to keep the refund. As mentioned above, it's still your money, and the IRS can't just arbitrarily keep it in a Chapter 13 case without getting the court to approve it.

At least, this is what our attorney said!

This year, we're getting back about $1100 from the Feds. We left our withholding alone because we knew our deductions would be lower due to us not paying on our HELOC 2nd, which is being stripped.

[mountanddo]

Our 13 was filed exactly one year ago this month. At the time of filing, we owed the Feds $118,000 for TY 2000-2003. We filed our 2010 tax returns well in advance of our April 5th 2010 341 meeting. Our Federal refund for 2010 was $5200. We received a refund check from the Feds in early March for the entire $5200. The trustee didn't even request the money, so we kept it as our savings cushion.

The fact is, the IRS would need to request a relief from the automatic stay to keep the refund. As mentioned above, it's still your money, and the IRS can't just arbitrarily keep it in a Chapter 13 case without getting the court to approve it.

At least, this is what our attorney said!

This year, we're getting back about $1100 from the Feds. We left our withholding alone because we knew our deductions would be lower due to us not paying on our HELOC 2nd, which is being stripped.

I'm surprized that the IRS didn't snatch up your refund since you filed BK and your taxes at the same time. I didn't think the IRS worked that quickly and would figure if you owed the 118k they wouldn't issue a refund. 118k? You must of had a lot of income those 3 years or was it penalties and interest? The IRS might not keep it but from what I've read on here, the trustee keeping it varies and I'm not sure what that is based on. You would think there would be some state guidelines so people would know.

[minan]

We thought we were getting a refund since all of our tax debt is being paid through the 13. Just got the letter today that they applied the refund to what we owe. Attorney doesn't understand why they would do this. We're 2 years into the plan and have paid on time. Shocked right now as we were hoping to use this money to pay off car insurance/homeowners/etc...we thought we lucked out since our trustee doesn't require tax returns or the refunds. Now this. We just feel like we can't get a break.

[tammygirl1]

Just a follow up. So last year, which was first year of refunds during a Ch13. We weren't sure if we would get ours backs since we owe back Fed, State, and Child Support (all being paid within plan). Well, we got both Fed and State returns (yeah). Well, this year, totally different outcome...still owe the priority debts and actively paying on the back childsupport through trustee but our Fed refund was withheld and applied to child support. It was only 142 but since hubby is still out of work, every penny is needed. I am hoping our State is not withheld as we are getting over 2k back. If they do, then we will have paid out more than what is owed to Child Services after claim is paid. I guess even though they have a claim submitted, they can also intercept refunds..Oh well

[tammygirl1]

Just another update for anyone who could have same issues.....State was swiped by Child Services also. So, there will be an overage at end of claim. I guess my question is, do they have to give it back to us or will they send on the money to mother and leave it to us to get any overage back from her. Definitely need to change our exemptions this year but hard to do since hubby is out of work and not sure what to claim right now due to lower incom...ugh...anyone who has insight om what happens to back child support overages would be appreciated.