How does a loan modification effect your income during tax time? Does the company write off the loss?

When a company writes of part of a debt, it is then recorded as income to the IRS and you pay taxes on it. Does the loan modifcation work the same way?

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3 Responses to 'How does a loan modification effect your income during tax time? Does the company write off the loss?'

1. v b - October 1st, 2008 at 7:06 am

   See IRS publication 4681. You will get a 1099-C if the loan modification writes off any part of your loan balance.

   Depending on when the modification occurs, you may be able to postpone including the money as income on form 982. (If the house ever recovers in value, you would have to include the money as income in the year you sell.)

2. Landlord - October 4th, 2008 at 5:41 pm

   Yes, you will have to pay federal and state income tax. You had the money in your hands, you have not paid taxes on it yet.

3. Ed Atun - October 5th, 2008 at 7:55 pm

   The tax was eliminated thru the end of 2009. Your timing is good. No more “forgiveness of debt” on your Form 1040 if it was your personal residence. Same for modifications..

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