1099-C Mortgage Forgiveness Tax Relief
Well, we’re officially in a brand-new year, and while many of us will be cautiously optimistic for 2022, considering the past couple of years, one dark cloud that looms over the welcoming in of any new year is tax season.
When dealing with the IRS, it’s important to be open, honest, and upfront regarding any debts or outstanding payments you may have against your name. If you do find yourself in debt and find that it is so large that you cannot afford to pay it, you may need to negotiate a debt cancellation with your lender.
Providing this is approved, the next financial obstacle you will need to overcome will be a vast tax bill. This is why we’re looking at 1099-C Mortgage Forgiveness Tax Relief. You see, if you do receive a 1099-C Form from a lender, the amount on this form will need to be reported to the IRS as a taxable income.
Want to learn more? Of course, you do, so here is more of a detailed look at 1099-C Mortgage Forgiveness Tax and a look at when it may be time to hire a tax professional, call Mike Habib at 1-877-788-2937 for mortgage forgiveness tax relief options.What is Form 1099-C: Cancellation of Debt?
Before we can start looking at when you should look into hiring a professional tax service, we shall begin today by looking at what Form 1099-C: Cancellation of Debt really is.
Form 1099-C is one of a series of ‘1099’ forms which the IRS uses in order to report payments and transactions, with the exception of employee wages. Any creditors and lenders must, by law, send a Form 1099-C to borrowers and the IRS if $600 or above in debt was forgiven or cancelled. In the event of a mortgage, which is in fact a loan, 1099-C Mortgage Forgiveness Tax will be the focal point.
Except for very special circumstances, you will find that the vast majority of the time, any cancelled debt will be classed as income. So, if you receive a Form 1099-C, the amount on the form for the cancelled or ‘forgiven’ debt, must be included as income on your tax return under the ‘other income’ line of Form 1040-SR or 1040.
One thing that is worth noting, which your tax lawyer or tax expert will tell you, is that the cancelled debt must be included on your income, even if you don’t receive Form 1099-C and it is less than $600. It should also be noted that, because the forgiven or cancelled debt is classed as income on your tax return, you will still be liable for this as a taxable amount and so if you were due a tax refund from the IRS, this may lower the amount that you were due.How is Debt Classified as ‘Cancelled’ by the IRS?
Life can be painfully cruel, unfair, and ironic at times. After all, junk food tastes like heaven and healthy food often tastes like bland cardboard. It can take days, weeks, months, or even years to lose a few measly pounds yet one or two days off from the diet and all of the weight will go right back on.
We aren’t here to complain about dietary choices and our waistlines however, we’re instead looking at how it may seem unfair that a person who has successfully had a mortgage debt cancelled, will still be liable in the eyes of the IRS, to pay tax on a debt that no longer exists. It may be unfair, but the IRS still classes a forgiven or cancelled debt as a taxable income because you were fortunate enough to receive a benefit and not have to pay for it.
Initially when you first borrow money, you won’t pay any taxes on the money that you have been lent because by contract, you are legally bound to pay tit back. That’s all fine and dandy, but once that contract has been done away with and no longer exists, that money is then yours to do with whatever you like.
As you probably know, nothing in this world is free, and so because you essentially received that income for free, the IRS don’t like this, and so once you have had the obligation to pay it back to the lender cancelled, you can’t get a perk like that for free and so the IRS will class this amount as a taxable income.
Call Mike Habib at 1-877-788-2937 for mortgage forgiveness tax relief options.Examples of when you may receive a Form 1099-C
Some common examples of when you might receive a Form 1099-C include the following:
- Return of property to a lender
- Abandonment of a property
- The modification/alteration of a loan upon your principal residence
As far as investments go, sure, you can invest in Bonds, Stocks and Shares, Gold, and even Art, but you also cannot overlook the benefits of property.
Owning a property nowadays is considered a very worthy investment, yet a little over a decade and a half ago, that wasn’t the case. As a result of the sheer scale of the real estate market collapse back in 2007, which sparked a global financial crisis, Congress was forced to pass the Mortgage Forgiveness Debt Relief Act back in 07.
Now, for any calendar years from 07 up until 2020, you were able to exclude up to $2 Million in what is known as ‘Forgiven Mortgage Debt’ if you happened to be married and jointly filing up to $1 Million for other filing statuses.
This was also applied last year in 2021 for any debt that was discharged in that same year, on the condition that there happened to be a written agreement in place, entered into in 2020. The exclusion can also be applied to mortgage debt forgiven through a connection with a foreclosure, or a mortgage restructuring.
On December 27, 2020 the CAA (Consolidated Appropriations Act) was officially signed into law to function as a stimulus measure to offer assistance to those who had been impacted by the Coronavirus pandemic.
You will find that the CAA actually extends the exclusion of cancelled qualified mortgage debt from income tax years 2021 up until 2025. There is a slight catch however, as the total max amount of excluded debt which can be forgiven is capped at $750,000.
Call Mike Habib at 1-877-788-2937 for mortgage forgiveness tax relief options.Who Can File Form 1099-C: Cancellation of Debt?
We all borrow money from time to time, for a whole host of different reasons.
Some people want to borrow money to protect and grow their capital, some want to borrow money to keep outgoings cheaper, and some may need to borrow money because they simply don’t have enough to accomplish their various goals and objectives.
It doesn’t matter what you borrowed money for, if you did borrow money from a commercial lender, and a minimum of $600 of that debt was forgiven or cancelled, the lender should send you a nice crisp mortgage forgiveness Form 1099-C. The IRS will also receive an identical copy.
We’re already looked at a few common examples of when lenders may send one of these forms so we won’t go over that again. What we will say however, is that if you do receive this form, don’t just ignore it or throw it onto the junk pile with the rest of your mail, instead, read it carefully and make sure that the information is correct. If any of the info is wrong, get in touch with the lender who loaned you the money, explain the situation, and request that they send you another Form 1099-C out, this time one that is correct.How Can You Avoid Paying Taxes on a Form 1099-C? Mortgage Tax Relief Options?
As you are probably painfully aware, the IRS always get what is owed to them, and legally, if you owe the IRS money, come hell or highwater they will get paid. With that said however, there are certain times where you may avoid paying taxes on Form 1099-C.
In order for you to establish your legal right to exclude the income shown on Form 1099-C, you must request and file IRS Form 982. If you fail to file this form, but you still claim the exception when filing your tax return, the IRS will have no way of determining that, even though your debt was indeed cancelled, there is still no tax payable to them.
If all of this sounds like a pain in the backside, and like logistical paperwork that you could most certainly do without, why not do what most people do, and hire a professional tax service and have tax experts take care of everything for you. We’ll be looking at the benefits of hiring a tax expert shortly.
Call Mike Habib at 1-877-788-2937 for mortgage forgiveness tax relief options.How Much Tax Will You Pay On a Form 1099-C?
Now to the painful part, because here we’re talking facts and figures. Dining out at a fancy restaurant is great, yet the only downside is when you ask for the bill and you see the damage in print. Well, the same principle applies here.
The 1099 tax rate is split into two parts. The first part is 12.4% for social security tax, whereas the second part is a 2.9% tax for Medicare.
If you’re self-employed, then regardless of which tax bracket you happen to be in, this tax will apply evenly to everybody.What Happens If You Fail to Report a Form 1099-C to the IRS?
Think you can be clever and skate around the rules by simply not reporting a Form 1099-C to the IRS? Yeah, don’t, because the IRS know and have seen every trick in the book.
The lender/creditor that sent you your copy of Form 1099-C also sent a copy to the IRS, as we mentioned earlier, so they are well aware that you received it, and they are well aware of the amount of debt that you have had forgiven. Form 1099-C Mortgage Forgiveness Tax is a prime example of this, so don’t think that you can get away with failing to pay.
Failing to file will raise a huge red flag with the IRS and this could mean that they start digging deeper, or that they perhaps consider you for auditing. At the very least, they will request that you prove to them that you didn’t owe them taxes on that particular debt, and if you can’t, not only will you pay what is due, you could also be slapped with a hefty fine or other penalty.Why Hire a Tax Professional to Handle Your Form 1099-C Mortgage Forgiveness Tax Relief Issues?
If you have received a Form 1099-C and don’t quite know what to do next, or what to put, and where, it could be time to hire a professional tax service.
Here’s a look at several reasons to hire a tax professional to handle your Form 1099-C issues:Save Time
One of the best things about hiring tax experts to handle this particular tax issue is the fact that they can save you so much time.
These individuals work with clients from all walks of life and deal with issues like yours every single week. They know everything there is to know about cancelled or forgiven debt, they know how to file the form, they know which other forms to request and file, and they can file and communicate with the IRS on your behalf.Save Money
Another reason to hire a tax professional is down to the fact that they could save you money.
If you have recently had a mortgage debt cancelled but are worried, you’ll still be liable for tax payments on it, a tax professional could help you to avoid being taxed.
As mentioned, there are special circumstances where individuals are not liable for tax payments on any forgiven or cancelled debts, and if these apply to you, a tax professional will help set things in motion and help ensure you don’t pay more taxes than you should.
Call Mike Habib at 1-877-788-2937 for mortgage forgiveness tax relief options.