debt relief

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Debt relief

Reducing the principal and/or interest payments on Less developed country loans.

debt relief

The forgiveness of a legal obligation, in whole or in part. In real estate, it occurs most frequently when a mortgage lender agrees to accept a deed to the property rather than go through a foreclosure, and further agrees to accept the property as full payment for the loan, even though it is not worth the full amount of the loan.In such a situation the borrower has received debt relief and must report that as income for tax purposes. There is a loophole: if the debtor was insolvent immediately before the debt relief, and insolvent immediately after the debt relief, then he or she need not declare income to the extent of the insolvency.


The debtor owes $125,000 on his home and 20,000 on credit cards. The debtor's only asset is his home, which is worth $110,000.

Netting assets and liabilities before the debt relief results in the debtor being insolvent by $35,000. After giving the home to the bank and receiving forgiveness of the balance of the mortgage loan, the debtor now still has credit card debt of $20,000 and no assets at all. The debtor is insolvent by $20,000.

Because the debtor is still insolvent, and the debt relief did not cure his condition of insolvency, there is no taxable income.

See also Publication 17, “Your Federal Income Tax,” Chapter 12, “Other Income,” available at the IRS Web site,

References in periodicals archive ?
Are there any restrictions during the period of a debt relief order?
Eurozone leaders agreed with Prime Minister Alexis Tsipras in July that they would consider additional debt relief for Greece once it concluded a successful first review on the country's third bailout programme.
Most of the time, these mailers are coming from debt relief companies and not a legitimate law firm.
Global Banking News-August 13, 2015--Germany ready to offer Greece debt relief
The International Monetary Fund (IMF) has said it would not participate in a new bailout for the debt-stricken Eurozone nation, until Athens and its creditors take difficult decisions on debt relief and economic reforms.
Will debt relief in Malawi go on some of the poorest people on Earth or - as previous aid did - into the pockets of its rulers and a top-of-the-range VIP lounge at Blantyre airport?
During the last few months, desperately needed progress has been made on debt relief for the world's poorest countries.
The racing business can make a bad debt relief claim if they are not on Cash Accounting and a debt is six months past payment date.
Under the debt relief initiative, debtor governments that have met the eligibility requirement develop a coordinated national plan, known as a Poverty Reduction Strategy, for how they will use newly available resources to fund domestic efforts in education, health, and other areas.
There is a quid pro quo for the debt relief obtained.
The Inter-American Development Bank will provide Guyana with US$64 million in debt relief over the next 10 years, of which up to one third may be delivered as interim debt relief, reports The Guyana Chronicle (Dec.
debt relief pledged by the G-8 leaders fell far short of expectations and earlier promises of $64 billion.