Foreclosures, Debt Cancellation & Bankruptcy
CPE: 8
Course Level: Intermediate
Field of Study: Federal Tax Law Topic
Prerequisite: Basic knowledge of preparing Form 1040
Advance Preparation: None
Summary
Today’s economy has left many people financially distressed. In uncertain times, as tax professionals, we need to provide the confidence our clients need to know that their transactions are reported correctly to the IRS with the least amount of tax impact possible. If you have clients faced with financial challenges, you don’t want to miss this course!
Module 1: Foreclosures
It’s not news that the American economy has been struggling. Unemployment levels are high, and people can’t pay their mortgages. Banks are foreclosing on properties at an alarming rate. Many times, mortgages are higher than property values, causing people to walk away from their investments and letting the property go into foreclosure or short sale. As a tax professional, it is your duty to understand the tax ramifications of foreclosures and properly report them to the IRS.
Objectives
Upon completion of this module, you will be able to:
- Determine if debt is recourse or nonrecourse.
- Calculate gain or loss on a foreclosure.
- Compute the amount of any debt discharge income resulting from a foreclosure.
- Identify the proper tax year to report the foreclosure.
- Transfer information reported on Forms 1099-A and/or 1099-C to Form 1040.
Module 2: Debt Cancellation
What could possibly be the down side of having your debt wiped out? This is probably what a lot of taxpayers think. However, we as tax professionals know that there more to it – much more. You need to let your clients know what the tax ramifications are of debt cancellation. Then you need to determine what options, exclusions and elections are available to minimize the tax impact and report the cancelled debt to the IRS.
Objectives
Upon completion of this module, you will be able to:
- Determine if a taxpayer is solvent or insolvent.
- Identify the date a debt is cancelled.
- Apply relief provisions, where applicable, to clients’ tax returns.
- Compute the excludable amount of debt discharge income.
- Complete Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.
Module 3: Bankruptcy
Bankruptcy filings are more prevalent than ever. In large part, it’s due to the weak economy, but it’s also more socially acceptable and many times, it makes the most financial sense for individuals to “wipe the slate clean”. Be prepared when your client comes to you after claiming bankruptcy Know the questions to ask so you can properly prepare his or her individual return as well as the return for the bankruptcy estate.
Objectives
Upon completion of this module, you will be able to:
- Distinguish among the various types of bankruptcies.
- Identify items reported by the bankruptcy estate vs. the individual.
- Prepare Form 1041 for a bankruptcy estate.
- Identify debts, including taxes, which are dischargeable in a bankruptcy.
- Classify items as deductible or nondeductible expenses of the bankruptcy estate.