Since the last recession many homeowners negotiated short sales of their homes with the mortgage lenders, where the lenders agreed to cancel the deficiency on the mortgage. The potential problem to the borrower is that lenders reported this forgiveness of debt to the IRS (Form 1099-C), requiring borrowers to report the amount cancelled as income on their tax returns.
Congress responded by enacting the Mortgage Forgiveness Debt Relief Act. This law excluded income from cancellation of debt relative to a principal residence. Unfortunately, this law expired on January 1, 2018, making this forgiveness of debt once again taxable.
This is not the case in bankruptcy. Debts that are cancelled in the bankruptcy discharge are not taxable income. Mortgage deficiencies, vehicle loan deficiencies, as well as credit card debt can be discharged in bankruptcy, with no negative tax consequences.
The Law Offices Of Todd S. Frankenthal helps clients throughout South Florida to get a fresh start. It has offices in Fort Lauderdale, West Palm Beach, and Boca Raton, and handles bankruptcy cases in all divisions of United States Bankruptcy Court For The Southern District Of Florida.
