Taxes...

[trango]

Hi Guys!

This forum has already saved me tons of time and money! Generally I just the find the question/answer that applies, but this one I'm not sure about.

I filed 25 October 2010, 341 24 November 2010 and Discharged and Case Closed on 26 January 2011! Thanks to this site it was a breeze!

I had a discharge of my house (about 186,000 liability) and another 45k of credit and personal debt.

The house is currently being foreclosed on, so even though I surrendered it, its not really a loss until next years taxes...

I guess since the discharge didn't happen until this year that none of it will effect my taxes until next year...

What do you guys know/think about how/if it will change things this year? And how about how to report it next year?

Thanks again!

[trango]

Taxes

Just found something that should be the answer:

"Deciding to simply live with your debts could increase your tax burdens. The IRS treats certain forgiven debts (debts for which a creditor agrees to take nothing or less than is owed) and debts written off (debts that the creditor has stopped trying to collect, declared uncollectible, and reported as a tax loss to the IRS) as taxable income to you. (26 U.S.C. § 108.) Any bank, credit union, savings and loan, or other financial institution that forgives or writes off all or part of a debt for $600 or more must send you and the IRS a Form 1099-C at the end of the tax year. When you file your tax return, you must report the write-off as income and pay taxes on it.
There are three exceptions to this rule that apply to consumers. Even if the financial institution issues a Form 1099-C, you do not have to report the income if:
The forgiveness or write-off is intended as a gift. (This would be unusual.)
You discharge the debt in bankruptcy."

From:
nolo.com/products/how-to-file-for-chapter-7-bankruptcy-HFB-legalupdates.html

That should do it, but does anybody have any additional data?

Obviously I don't want to get into trouble after having just gotten out of it!

Thanks!

[free2breathe]

You won't be taxed on any debt discharged in bankruptcy, so even if the bank sells your house at a loss, you will not be required to report the difference as income.

If you do receive a 1099-C on a debt that was cancelled through your bankruptcy, you just file IRS form 982. Easy peasy

[justbroke]

If this is a property that you both surrendered in bankruptcy and it is foreclosed upon, you'll have the protection using IRS Form 982 to indicate that it was from such foreclosure as part of a debt discharged under Title 11 (the Bankruptcy Code).

[trango]

Taxes

Wow, I didn't know about the IRS Form 982.

Thanks guys!

[justbroke]

That's what we are here for.

[Flying2BK]

.....and Another Tax question!

I am filing my Taxes and it looks like I owe $6000. Since I am in a BK-13 plan, do I need to let the IRS know that I am in a BK and set up a payment plan? I cannot pay the $6000 at once since I have very little DMI. Of course this is Post Petition...otherwise I could have included it.

Thanks in advance!

[justbroke]

Technically, you are not allowed to get into arrears with the IRS during the pendency of your Chapter 13. You should call the IRS and setup a payment plan. If you don't, you could be subject to your case being dismissed. That $6K is going to hurt since the IRS will probably want it over 60 months, which will come out to $152/month (due to interest).