About 'federal debt relief'|...in the industrialized world. The federal rate is 35%, with state corporate ...Yet under President Obama there is no relief in sight. Instead, he has spent...
Normally, the cancellation of debt is subject to federal income tax, unless you are bankrupt or insolvent. But according to the Mortgage Debt Relief Act of 2007 taxpayers are relieved from having to pay income tax on debt on their principal residence that is reduced through mortgage restructuring and on mortgage debt that is forgiven in connection with a foreclosure. This relief applies to debt forgiven from 2007 to 2012 up to $2 million. There are other types of relief from income tax on debt cancellation that are available for farmers. Qualified farm debt A cancelled debt that is "qualified farm debt" according to the IRS can be excluded from your income subject to federal income tax. The debt is considered to be qualified farm debt if you incurred it directly in operating a farming business and at least 50% of your total gross receipts for the three years prior to the debt cancellation were from a farming business. Qualified person The loan must be owed to a person or entity that is "actively and regularly engaged in the business of lending money". This includes the U.S. Department of Agriculture and any federal, state, or local government agency. A loan from a family member, from the person who sold you the property, or from a person who receives a fee from your investment in the property would not qualify for this tax relief on debt cancellation. Limit on the amount of debt cancellation you can exclude When you exclude the cancellation of qualified from debt from your taxable income, the amount you exclude is set off against "tax attributes" and the basis of property you use in your farming business. So the amount of debt cancellation you can exclude is limited to the total of those amounts. Tax attributes include a net operating loss for the current year and any net operating loss balance you are carrying forward from prior years, and any net capital loss for the current year and carryovers from prior years. Tax attributes also include a general business credit carryover, passive activity loss carryover, foreign tax credit carryover, and minimum tax credit available at the beginning of the following year, each of these multiplied by 3 to determine the limit on the debt cancellation exclusion. If you don't have any of these tax attributes, you will see a tax benefit by not having to include the debt cancelation. But if you have tax attributes, offsetting your debt cancellation against them reduces the net tax benefit to you. Net operating losses and net capital losses are reduced dollar for dollar. But the other tax attributes are reduced by 33 1/3 cents per dollar of debt cancellation. These include the general business credit, passive activity loss, foreign tax credit, and minimum tax credit. So you would see some tax benefit there. Another option is to elect to first apply the debt cancellation exclusion against the adjusted basis of property you use in your farming business. This will result in a bigger tax benefit this year, but by reducing your basis you are reducing your depreciation deductions in future years. So some tax analysis and planning is necessary. The reduction of tax attributes and/or the reduction of your property basis are done on IRS Form 982 - Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Midwestern Disaster Areas If your farm is located in the Midwestern areas declared as a disaster area due to the severe storms, tornadoes and flooding that occurred from May 20, 2008 to July 31, 2008, and you suffered a loss, you can exclude the debt forgiveness related to that loss from your taxable income. The Midwestern Disaster Areas include parts of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin. For a list of all the counties included, you can see IRS Publication 4492-B - Information for Affected Taxpayers in the Midwestern Disaster Areas. Discharges of non-business debt, such as the mortgage on your home, which are made on or after the date of the disaster up until January 1, 2010, are excluded from your taxable income. To exclude the debt cancellation from your income, you must have suffered an economic loss, such as damage or the destruction of real property, a loss related to displacement from your home, or the temporary or permanent loss of your livelihood. You may have to reduce certain tax attributes on Form 982 as indicated above for the cancelled debt. Sources: Publication 225 - Farmer's Tax Guide - Internal Revenue Service Publication 4492-B - Information for Affected Taxpayers in the Midwestern Disaster Areas - Internal Revenue Service Publication 4681 - Canceled Debts, Foreclosures, Repossessions, and Abandonments - Internal Revenue Service |
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The federal Servicemembers’ Civil Relief Act (SCRA) shields property both against debts accrued before being called to active duty and during military service itself.
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Debt Relief Agency ensure payment of outstanding debts to the company and contact the debtor by phone to agree on an available repayment schedule for you.
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