On Jun 6, 6:20*pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -



Mark, I haven't looked at anything beyond what you've posted here, but
my reading of it is that as long as you were insolvent to the extent
of at least $20K, you could exclude the entire $100K -- $80K as
qualified debt, and the remaining $20K under the insolvency rules.

Did the committee reports on the bill add any further clarification?

Katie in San Diego

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

I've read the IRS instructions for Form 982 and also the text of H.R.
3648: Mortgage Forgiveness Debt Relief Act of 2007, they both seem to
say the same thing and leave my question unanswered:

Suppose I have a mortgage loan on primary residence which is part
qualified, part non-qualified. The property is foreclosed and I have
cancellation of debt income, which of course I want to exclude from
taxation to the maximum extent possible (see example below).

My question: given two exclusions: insolvency, and the new qualified
principal residence indebtedness, are they additive?

For example:

I have a $100K mortgage (a recourse loan) on a property with a FMV of
zero (to keep things simple), of which $80K is qualified acquisition
debt eligible for the new exclusion. I am also insolvent to the tune of
$5K. Can I exclude $80K on Form 982, or $85K?

Now suppose I am insolvent to the tune of $95K. I can elect to exclude
$95K instead of $80K, but can I also combine them to exclude the full $100K?

(remainder of message is quoted text from tax sources):

Text of the law that I found, very similar to what is in the IRS pub:

"(4) ORDERING RULE- If any loan is discharged, in whole or in part, and
only a portion of such loan is qualified principal residence
indebtedness, subsection (a)(1)(E) shall apply only to so much of the
amount discharged as exceeds the amount of the loan (as determined
immediately before such discharge) which is not qualified principal
residence indebtedness."

"(C) PRINCIPAL RESIDENCE EXCLUSION TAKES PRECEDENCE OVER INSOLVENCY
EXCLUSION UNLESS ELECTED OTHERWISE- Paragraph (1)(B) shall not apply to
a discharge to which paragraph (1)(E) applies unless the taxpayer elects
to apply paragraph (1)(B) in lieu of paragraph (1)(E)."

The IRS adds the following language under "Ordering Rule" in the form
instructions:

"Ordering rule: The remaining [...] nonqualified debt may qualify in
whole or in part for one of the other exclusions, such as the insolvency
exclusion."

-Mark Bole

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >