Cancellation Of Debt - COD
First you receive the good news that your credit card debt or part of your mortgage has been forgiven and you no longer have to make any payments. Then the bad news arrives. The amount forgiven is taxable. According to the IRS, a cancellation of debt (COD) is taxable income even though you didn't receive actual cash. You would receive a Form 1099-C, Cancellation of Debt from the lender or whoever forgave your debt, and this amount will be reported to the IRS.
Let's say Frank could no longer make mortgage payments on his loan, so it is foreclosed by the bank. Frank bought the house for $100,000 and made $5,000 worth of principal payments, but today the house is only worth $80,000. So Frank will receive a Cancellation of Debt Form 1099-C from the bank for $80,000 that he needs to report as income on his taxes.
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Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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