By Sean A. Kelly
If you have had debt that was cancelled or forgiven, then the cancelled amount may be taxable. The debt from mortgage was also considered in a similar way. When a home was sold by sale or by foreclosure, if the amount got from the sale was less than the original debt owed, the balance amount to be owed was cancelled by the lender. But, this cancelled amount had always been considered taxable. The Mortgage Forgiveness Debt Relief Act 2010 was passed to help the already financially burdened home owners from being taxed for the forgiven amount. This Act was passed as an extension to the Federal Mortgage Debt Relief Act 2007. The law permitted the exclusion of the forgiven amount from the primary mortgage loans. The California residents had to pay for the forgiven amount, as the state’s tax obligations. On April 12, 2010 California passed the Mortgage Forgiveness Debt Relief Act 2010 that permitted the exclusion of forgiven debt from being taxable.
Generally, when you borrow money from a lender you make an agreement to pay back the money. But, when this agreement is cancelled and the money borrowed is forgiven the amount may be considered as an income and hence may be taxable. The cancellation of debt is usually reported by the lender to you and the IRS through the Form 1099-C. There are a few exceptions on forgiven amounts being taxable. The exceptions include the ones created by mortgage debt relief Act 2007, the debts discharged through bankruptcy, if you were insolvent during the cancellation of the debt, and debt incurred from farm operation.
Managing debt may be a hard task. There are agencies that can offer help to reduce your debts. Many of us are not aware of the government debt relief programs that can help us deal with the debt issues. The government debt relief programs include debt consolidation in which a single loan is taken to pay back other debts. The program if quoted for a lower rate may help by having us to make a single payment, against clearing several bills. The program may work on unsecured debts by using the existing assets as collateral. The government helps by giving billions of dollars in debt relief to help people, which most of us are not aware of. The applications for the programs can be obtained from government offices or on the internet. The applications when submitted may be taken into consideration if your application meets the government’s requirements.
Apart from government relief programs there are many debt relief programs offered by private companies. The initial step towards any debt management program may require an assessment of your existing financial situation. Depending on the intensity of the debt you may choose any of the available relief programs. Debt relief programs include debt consolidation, debt settlement, credit counseling and bankruptcy, the last choice. If you have piled up debts but have a good credit, you may consider debt consolidation programs. The program may consolidate all your existing debts into one loan, may be with a lower rate. This may help you by lowering the amount on monthly payment. But, if you have significant debt and are having trouble making monthly payments, you can consider debt settlement programs. Sometimes, credit counseling may also help you to get lower interest rates and lower monthly payments. Bankruptcy may be the last option considered to settle debts and may have serious effect on your credit reports for up to ten years.
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