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Cancellation of Debt in Connecticut
Never has there been more attention on what qualifies as cancellation of debt or 1099-C income than under the present economy with failed government programs, failed bank assistance to borrowers and an era of deregulation. Many unsuspecting individuals and homeowners are at a loss to understand or get help for 1099-C income. The failure to properly report or account for this income falls squarely on middle class taxpayers who often become victim to tax liabilities for unreported income and full-blown audits by state and federal tax authorities.
Understanding Canceled Debt
When a debt is canceled, such as a mortgage, it can be a tremendous relief. It is easy to forget, however, that you need to declare canceled debts to the IRS. The IRS treats the cancellation of debt as income.
If you are already struggling to pay your bills, it can be difficult to imagine how you will pay for taxes on your canceled debt. At The Law Offices of Neil Crane, LLC, we can help you understand your options and properly avoid or resolve any outstanding tax debt issues you may have as a result of a canceled debt. Since 1983, our attorneys have provided clients throughout Connecticut with quality debt relief and bankruptcy services.
To speak with our experienced Connecticut attorneys about your cancellation of debt problems, contact our law firm online, or call us at 203-230-2233 or toll free at 888-249-3027. Your first consultation with our firm is free of charge.
Taxes for Canceled Debt
When a loan is forgiven or a debt is canceled, you are required to pay taxes on that debt. This can include a wide range of debts, including:
- Car loans
- Credit card debt
- Medical bills
- Student loans
The IRS treats a forgiven debt as income for tax purposes. There are exemptions available in some circumstances. We have the full range of experience and knowledge to determine whether an exemption is available in your specific case.
If your canceled debt is more than $600, your lender is required to send you a 1099-C Cancellation of Debt form. Then, you will need to include that as part of your income taxes. If your canceled debt involves real estate, and your lender took your property in lieu of payment, you may be required to declare your gains or losses from the "sale" of your property.
Our attorneys understand how confusing tax concerns such as debt cancellation can be. We will clearly explain your legal options and your rights regarding your canceled debt. For example, if your canceled debt involves your principal residence, The Mortgage Tax Forgiveness Act of 2007 may provide relief. Under this act, you may not be required to pay taxes on debt that is canceled or reduced through modification or restructuring, so long as you meet certain forgiveness criteria.
We can also help you understand:
- The definition of cancellation of debt
- How you can be misled by a 1099-C
- Bankruptcy relief options for cancellation of debt
- How to exclude 1099-C through tax insolvency
Penalties for Nonpayment of Taxes
If you fail to pay taxes on your canceled debt, you could face serious consequences. The IRS or Connecticut Department of Revenue Services (DRS) can take your home, seize your assets or place a lien on your property. Additionally, penalties, interest and fees can build up if you delay in making payment.
Our lawyers are skilled at handling all types of debt issues. We can help you obtain an effective resolution if you are delinquent in paying your full income taxes or if you are facing an audit.
Contact Our Waterbury Tax Relief Attorneys
You can turn to us for advice and guidance regarding problems with your canceled debt. Call us today at 203-230-2233 or toll free at 888-249-3027, or contact us online. From our offices in Hamden, Bridgeport, Ridgefield, Waterbury and Rocky Hill, we offer a free, no-obligation consultation to discuss your tax concerns.
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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.