Posted by JOHN HASLACH, CPA, MST on June 13, 2007 at 06:53:02:
Pretty great idea, John! I have some clients who have not paid me and it is not worth the time and trouble to sue them. Think I’ll send an email to one right now!
after cancellation of debt - Posted by Jim McDonough
Posted by Jim McDonough on June 12, 2007 at 09:23:22:
After the foreclosure, the bank reported the debt I owed them to the IRS which makes the debt income for me; however, the bank is still sending me statements to collect the money. Can this be legal?
Re: after cancellation of debt - Posted by Rich-CA
Posted by Rich-CA on June 12, 2007 at 16:52:21:
Do you know how much the bank got for the property? How much you owed?
The taxable amount should be the gap, the amount the bank did not collect. And only if they actually forgave the debt, which if they are still trying to collect, they have not done. So either its forgiven debt OR they are trying to collect, it cannot be both.
Might depend on your state’s law - Posted by John Merchant
Posted by John Merchant on June 12, 2007 at 09:55:12:
In some states a foreclosure on a homestead cannot then be followed up with a deficiency lawsuit, while other states do so permit.
So obviously you need to learn if your foreclosure can be followed by the bank’s suing you for the deficiency if they had one.
If the bank cannot collect on a deficiency J in your state, you can safely ignore the bank’s collection letters.
As to the taxability of your remaining debt to the bank, I’d consult with a tax accountant or lawyer to get a professional opinion…as I’d argue it, the bank WAS paid, at least in part, by their foreclosing and getting title to the RE, but I sure don’t know the tax law on this situation.
Re: after cancellation of debt - Posted by JOHN HASLACH, CPA, MST
Posted by JOHN HASLACH, CPA, MST on June 12, 2007 at 09:47:35:
Not speaking to the legality of the bank sending you statements, but forgiveness of debt is definitely taxable income to you.
A Jimmy Napier tool - Posted by John Merchant
Posted by John Merchant on June 12, 2007 at 23:13:00:
My canny buddy Jimmy Napier in FL has long used this “Forgiveness of Debt” to actually collect from his debtors when it looked like they weren’t going to be paying him at all.
He sends them a little note, maybe even in a Christmas card and tells them he’s forgiving their debt to him…and also that he’s going to be notifying IRS of same so IRS will be expecting to be paid the income taxes on that “income” to the debtors.
Jimmy claims to have actually been paid by several debtors who’d rather deal with Jimmy than the IRS.
Me too! Jimmy may be tough but he’s far preferable to IRS as they are for sure not my favorite sparring partner.