debt relief

(redirected from Debt forgiveness)

Debt relief

Reducing the principal and/or interest payments on Less developed country loans.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.

Example:

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, www.irs.gov.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
This is different from debt forgiveness or debt cancellation, which the Philippines never really sought.
The United Patriots (minority partner in the ruling coalition with GERB) frimly opposed and described the debt forgiveness as precedent.
This would be achieved by full conversion of the bank's subordinated debt and partial conversion of its senior debt into equity, as well as some senior debt forgiveness.
class="MsoNormalMs Bird underlined that the World Bank was satisfied with the efforts of the Somali government in meeting the requirements for debt forgiveness.
The post Insolvency Service secures debt forgiveness for 76 applicants appeared first on Cyprus Mail .
The Tax Court held that a married couple's interest in their retirement account was not considered an asset for purposes of the cancellation-of-debt (COD) insolvency test, and thus the taxpayers could exclude a portion of the income from the debt forgiveness. According to the court, the retirement account could not be used to immediately pay any income tax due to the discharged debt and therefore was not an asset for purposes of the test.
DeVry will also pay $50.6 million in debt forgiveness.
Any significant compromise by Europe towards Greek debt forgiveness runs the risk of causing a dramatic change in European politics if extreme left-wing parties in Spain and beyond choose to follow Syriza's tactics.
In an analysis of Greece's financial situation the IMF has found that Greece will need huge debt forgiveness if it is to return to market access and cease living off the bail-outs of its international creditors.
In comments he made to the Greek parliament, Varoufakis said that the 'soul' of Draghi, was 'filled with fear' at the thought of debt forgiveness for Greece because of the potential reaction from hardliners in Germany.
Chapters discuss the value of community colleges as a cheaper source of credits that can be transferred to a traditional university, scholarships, the online education revolution (taking courses online can potentially yield tremendous savings!), loan repayment plans and student debt forgiveness programs, and much more.