LouD Posted June 8, 2009 Report Share Posted June 8, 2009 Client is going thru the short sale process on their primary residence and will have about $150k of debt forgiven once the home sells. Purchased the home 6 years ago so will qualify for the primary residence debt income exclusion. 3 years ago, they did a cash out refinancing where they consolidated about $55k of credit card and automobile debt - so I know that this $55k of debt can't be excluded using the primary residence debt exclusion. My quesiton - can they use the insolvency exclusion for this remaining $55k of debt forgiveness? Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 9, 2009 Report Share Posted June 9, 2009 Certainly, if it applies, they can. Just be sure to read exactly what 'insolvent' means to the IRS, and if they fit, use it. The term "insolvent" means the excess of liabilities over the fair market value of assets, determined on the basis of a taxpayer's assets and liabilities immediately before the discharge. § 108(d)(3). A taxpayer's assets for this purpose include assets that are exempt from creditors' claims under the applicable state law. Carlson v. Commissioner, 116 T.C. 87 (2001) Quote Link to comment Share on other sites More sharing options...
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