Are there any exemptions from the relief of indebtedness income?
AYes. There are four circumstances where the taxpayer can get relief from taxation on forgiveness of debt income: (1) The taxpayer is insolvent (the taxpayer’s debts exceed their assets as determined under Bankruptcy Code Section 108(d)(3); (2) The debt is discharged as part of a bankruptcy proceeding; (3) The debt discharged is qualified farm indebtedness; or (4) The debt discharged is qualified business indebtedness (see 26 U.S.C. ยง108(c)). Additionally, as this is being written, President Bush has asked for legislation that would amend the tax code so that certain taxpayers involved in short sales would not have income from forgiven indebtedness. The indications are that if this amendment were enacted it would provide relief only to homeowners and not to investors.
Related Questions
- Do all types of income qualify for exemption from Virginia income tax if I qualify for relief under the Military Spouses Residency Relief Act?
- Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
- What is "Low & Moderate Income Homeowners Property Tax Relief" program and How do I qualify?
