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Tax on Principal Forgiviness

Posted in Principal Reduction, taxes

Folks underwater holding their breath Keith Harney Thanks to Seattle Times  September 13, 2014 It appears Congress will extend a tax-relief program for them, but not until after the November elections. WASHINGTON — Congress is back from its summer vacation, so the burning financial question on thousands of homeowners’ minds is this: Are you guys finally going to help consumers who are underwater on their mortgages, many of whom face crushing federal tax bills if they accept — or have already accepted — principal reductions by their lenders? This question is especially sensitive after the $16.65 billion toxic-loans settlement Bank of America and the Justice Department reached last month. Roughly $7 billion of the deal is earmarked for direct borrower relief, and a large chunk of that is expected to involve principal write-downs for underwater owners. Earlier settlements with...

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Filing for Bankruptcy Does Not Create Tax Consequences

Posted in Bankruptcy

Filing for Bankruptcy Does Not Create Tax Consequences Written by Craig D. Robins, Esq.  Thanks to Long Island Bankruptcy Attorney I was prompted to write this article by the unusually large number of calls that I received last month from old bankruptcy clients and their tax preparers. For some reason, many tax preparers, not knowing how to treat bankruptcy for tax purposes, mistakenly believe that a taxpayer’s bankruptcy must either be reported on a tax return, or there would be tax consequences involving the concept of “debt forgiveness.” Understanding the concept of debt forgiveness is important as that may trigger tax consequences. However, bankruptcy does not. There May Be Tax Consequences for Forgiveness of Debt. I frequently represent clients with negotiating settlements of credit card debt as an alternative to filing for bankruptcy. Let’s suppose that I negotiate a...

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