In general, if you have cancellation of debt income
because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs (IRS Tax Topic 431).
This exchange offer will permit the holders of LINN units to maintain their economic interest in LINN through LinnCo, an entity that is taxed as a corporation rather than a partnership, which may allow LINN unitholders to avoid future allocations of taxable income and loss, including cancellation of debt income
, that could result from future debt restructurings or other strategic transactions by LINN.
One situation where an S-Corporation can be more advantageous than an LLC is in the case of Cancellation of Debt Income
real estate foreclosures and cancellation of debt income
New York, NY, February 06, 2013 --(PR.com)-- There is considerable confusion among homeowners, investors and even accounting professionals concerning the proper tax treatment of cancellation of debt income
. The tax consequences for short sale or foreclosure of a primary residence are clear, but the investor or second home owner has greater problems.
If the person whose debt is discharged is not an employee of the applicable entity, but the debt discharge is nonetheless compensation for services, the compensation should be reported on a Form 1099-MISC, Miscellaneous Income (because under these circumstances, it is compensation, not cancellation of debt income
; cancellation of debt income
should not be reported on Form 1099-MISC.)
Chapters cover the bankruptcy estate, payment of trust fund taxes, bankruptcy court proceedings, discharge of taxes, consequences of cancellation of debt income
, partnerships and S corporations, and corporate reorganization under the bankruptcy code.
But where there is some possibility that an obligation of the trust will be forgiven, generating cancellation of debt income
for the trust, grantor status will be highly undesirable.
To make matters worse, lenders sometimes saddle foreclosed homeowners with so-called cancellation of debt income
if the deficit between what they owed and what their home was sold for has been forgiven.
Although there are no escaping tax laws on the gain from a short sale, the good news is recent changes to tax codes allow borrowers to exclude cancellation of debt income
from personal income taxes on recourse loans.
Delayed Recognition of Certain Cancellation of Debt Income--Allows certain businesses to recognize cancellation of debt income
over 10 years for specified types of business debt repurchased by the business after Dec.
However, a third mortgage would probably produce cancellation of debt income