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Cancellation of qualified real property business indebtedness. Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and ...
A taxpayer has qualified farm indebtedness if such indebtedness was incurred directly in connection with the taxpayer's trade or business in farming; and; 50% or more of the aggregate gross receipts of the taxpayer for the three taxable years preceding the discharge is attributable to the trade or business of farming [28]
The Bipartisan Budget Act of 2018 renewed it for all of the tax year 2017 and offered a wide range of individual and business tax benefits that had expired at the end of 2016, including the "exclusion from gross income of discharge of qualified principal residence indebtedness (often, foreclosure-related debt forgiveness), claimed on Form 982." [2]
One form of income listed in the Code, that of "discharge of indebtedness" is not often considered income by lay persons. If, however, a taxpayer owes a debt to any other party, and that debt is forgiven without being fully repaid, the taxpayer must as a general rule declare the forgiven amount as income, and must pay tax on it. [6]
Acquisition indebtedness is defined as an indebtedness which is incurred in acquiring, constructing, or substantially improving any qualified residence, and is secured by such residence. [8] Home equity indebtedness is defined as any indebtedness secured by a qualified residence to the extent that the aggregate amount does not exceed 1) the ...
Example: X owes Y $50,000. If Y discharges the indebtedness, then X no longer owes Y $50,000. For purposes of calculating income, this is treated the same way as if Y gave X $50,000. For a more detailed description of the "discharge of indebtedness", look at Section 108 (Cancellation-of-debt income) of the Internal Revenue Code. [16] [17]
A bankruptcy discharge is a court order that releases an individual or business from specific debts and obligations they owe to creditors. In other words, it's a legal process that eliminates the debtor's liability to pay certain types of debts they owe before filing the bankruptcy case.
Recourse debt or recourse loan is a debt that is backed by both collateral from the debtor, and by personal liability of the debtor. [2] This type of debt allows the lender to collect from the debtor and the debtor's assets in the case of default, in addition to foreclosing on a particular property or asset as with a home loan or auto loan.