Debt Forgiveness & Tax Liability

If you owe a debt that is cancelled, reduced, or forgiven, the forgiven amount may be taxable. With all the foreclosures, short sales, and debt settlements taking place these days, a lot of people are asking the question: do I have any tax liability? Because each individual circumstance is unique, it would be impossible to document all the possible scenarios.

However, the IRS website has a great article discussing the Mortgage Forgiveness Debt Relief Act and Debt Cancellation at http://www.irs.gov/individuals/article/0,,id=179414,00.html. You can also go to Publication 4681, Cancelled Debts, Foreclosures, Repossessions and Abandonments at http://www.irs.gov/pub/irs-pdf/p4681.pdf or the IRS News release on Mortgage Workouts at http://www.irs.gov/irs/article/0,,id=179073,00.html.

These resources may help you understand your situation a bit better, but there are still many complexities. In short, if you have questions about your tax liability, consult your tax professional to understand your personal ramifications.

Deanna Koffler, Nine36 Financial (936 Financial)