2013 Questions

[NeverDone]

I've heard that in 2013 that discharged debt is taxable. Is this correct?

[TheBajan]

If that's true... the whole lot of us are in trouble! I haven't heard this.

[despritfreya]

You heard wrong. You and those you are listening to are confusing the waiver of forgiveness of debt income as it relates to short sales/mortgage issues from that of bk. Such waiver, as granted by the Mortgage Forgiveness of Debt Relief Act, ends in January, 2013 unless Congress extends it. This has NOTHING to do with discharging debt in a bk and such discharge not being a taxable event under Section 108 of the Internal Revenue Code.

Des.

[HHM]

Out of curiosity, where did you "hear" that.

But as Desp points out, the information is probably confusing the expiration of the Mortgage Debt Forgiveness Act. Under that act: if a home is foreclosed or short sold, and if there is a deficiency, AND if the lender forgives the deficiency (or state law does not allow collection), and the foreclosed home was the debtor's primary residence; THEN no income tax liability for forgiven debt income on that deficiency. The MDFA expires at the end of this year.

Debt discharged in bankruptcy is never taxable.

For most people, if they are facing a deficiency and the home is being foreclosed or short sold, they most likely have other debt issues and end up filing BK anyway, so the MDFA is usually moot when it comes to the potential tax on the forgiven deficiency. Since the debtor discharges the deficiency in BK, there is no tax anyway.

[TheBajan]

Des,

I don't think I've told you how much I appreciate your knowledge and willingness to share it with us. Thank you for the many, MANY times you have clarified things on this forum. We all count on and appreciate you.

Cheers!

[Pizza]

I've heard that in 2013 that discharged debt is taxable. Is this correct?

Goodness gracious no! Even undischarged, forgiven debt can go untaxed if the debtor can prove insolvency at the time of such forgiveness.

[keepsmiling]

Just curious if there is word on the street whether this will be extended or not. Anyone have any thoughts?

[HHM]

Just curious if there is word on the street whether this will be extended or not. Anyone have any thoughts?

Obama's Fiscal year 2013 budget does contain an extension, but I haven't heard anything on whether it has actually been enacted. It probably will get extended to help facilitate the principal reduction refi's, but who knows.

[tobee43]

Obama's Fiscal year 2013 budget does contain an extension, but I haven't heard anything on whether it has actually been enacted. It probably will get extended to help facilitate the principal reduction refi's, but who knows.

i agree with you assessment of how they will proceed. although, i find it rather interesting that the issue has not been addressed sooner.( in reality and not wanting to particularly be politicial , i may very surprised the mortgage crisis nor the Act has been discuss during much during the campaign). i have always been such an advocate and a strong component of the Act, i'm hoping they will give a bit more time to help clear the stale air.