Would Irs Consider Canceled Debts As Eligible For Tax Debt Relief?


by Khmer Lee P. Lugod - Date: 2010-02-21 - Word Count: 388 Share This!

When a debt from house mortgage is canceled due to settlement, the value gained from such settlement is supposed to be taxable. However, IRS through the Mortgage Debt Relief Act of 2007 allows homeowners to avail tax debt relief under this circumstance. This means that owners' income pursuant to gain from foreclosure or settlement will not be taxable.

However, this consideration under a debt relief program only applies to primary residence status. Any debt cancellation of another residence type will not be considered in the tax debt relief program. On the other hand, other forms of debts that were canceled or settled may also be excluded from taxation.

For instance, the debt was $25,000 then a debtor has availed of a settlement to only pay only $10,000. The remaining $15,000 will now be an income and is taxable. However, if such settlement was availed through a bankruptcy declaration, said amount won't be taxable through the tax debt relief program. However, this settlement applies only to primary residence mortgage issues; personal debt can't get any settlements.

Declaration of insolvency is also a likely candidate for tax debt relief. When an individual's property's value is not greater than its canceled debts, then there's no point of taxation. This person's worth being negative, meaning there is really no income to begin with for taxation. So in this case, a tax debt relief is simply just and humane.

Debt due to farming engagement may also be eligible for tax debt relief. The government seems to single out farming here, but it's understandable. Select farming debts when directly used to farm operation may not be taxed. This is especially true if source of income for a certain period is from farming. And that the source of money owed is from a lending institution.

This act of forgiveness from IRS to farmers is only fitting considering the role of the farmers in supplying food. However, take note that only select farming debts can be applied, personal debts of farmers will not be considered. Still this works to the farmers' favor, since the majority of their income is from farming. What is taxable then may be an income beyond farming, and canceled debts beyond farming expense.

Basically, IRS will only apply tax debt relief program to select canceled debts, those that are not mentioned here are still subject to taxable income.

Related Tags: debt relief, taxes, tax debt relief, tax relief, government tax benifits

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