Has anyone used the insolvency rule to void a 1099?

crazyeyes

LoanSafe Member
Mar 6, 2012
40
0
0
I'm trying to understand this, since I don't qualify for the debt forgiveness act.

If you receive a 1099 for the bank's loss, say $200k. You have to pay taxes on that as it if were income.

As if we haven't been through enough after losing our entire life savings, we now owe the IRS 28% of $200K?

I've been reading up about the insolvency rule, which is rarely used. As I understand, if your liabilities are
greater than your assets you can exempt that amount from the 1099.

What I don't understand, can you include the 1099 amount as a liability when adding your assets and liabities?

In other words, if I receive a 1099 for $200k, and my balance sheet shows that as a $200k liability, minus my $20k in assets, therefore my 1099 liability is $180k?

I know this is a tax question. But there must be a lot of people getting 1099s right now who are freaking out
or about to, so I can't be alone on this.

My lawyer keeps telling to consider bankruptcy but why do that if I don't have to?
Thanks!
 
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bankwhipped

LoanSafe Member
Apr 11, 2011
161
8
18
Florida
I'm trying to understand this, since I don't qualify for the debt forgiveness act.

If you receive a 1099 for the bank's loss, say $200k. You have to pay taxes on that as it if were income.

As if we haven't been through enough after losing our entire life savings, we now owe the IRS 28% of $200K?

I've been reading up about the insolvency rule, which is rarely used. As I understand, if your liabilities are
greater than your assets you can exempt that amount from the 1099.

What I don't understand, can you include the 1099 amount as a liability when adding your assets and liabities?

In other words, if I receive a 1099 for $200k, and my balance sheet shows that as a $200k liability, minus my $20k in assets, therefore my 1099 liability is $180k?

I know this is a tax question. But there must be a lot of people getting 1099s right now who are freaking out
or about to, so I can't be alone on this.

My lawyer keeps telling to consider bankruptcy but why do that if I don't have to?
Thanks!
You would add the fair market value of all your assets ie, house, savings, investments etc. then you would deduct
all your liabilities ie, mortgage, all loans, credit card debt, including the amount you owed the day prior to settlement if you end up with a negative amount then you can claim insolvency.

This is just my opinion of the law, do check with an accountant to be more sure but I doubt that you would have to file bankruptcy.

Why do you think you don't qualify for the debt forgiveness? was this debt for something other then a home you lived in(for at least 2 years) during the last 5 years?
 

debhayley

LoanSafe Member
Sep 27, 2012
2
0
0
I agree with bank whipped

My forclosure or SS will not happen until after 2012, so I have been checking the rules. My CPA said what bank whipped said.
"You would add the fair market value of all your assets ie, house, savings, investments etc. then you would deduct
all your liabilities ie, mortgage, all loans, credit card debt, including the amount you owed the day prior to settlement if you end up with a negative amount then you can claim insolvency." The assets include any retirement money. They can't take it, but they do use it to determine if you are insolvent. The one thing that I have been told is if you do the formula and you have $100K more liabilities than assets then you will not have to pay taxes on that $100K, but if your 1099 was for $200K then you would still owe taxes on $100K.

"This is just my opinion of the law, do check with an accountant to be more sure but I doubt that you would have to file bankruptcy." I agree with this also.

Usually the house is makes our liabilities more than our assets which helps. It just depends on what else you have.