loan forgiveness verses loan settlemet

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I’m working to resolve a reverse mortgage buy back where the value of the property is less than current value. I want to be sure I don’t have to pay tax on the difference and want to know what the bank shouldn’t issue me that would require it.

17434976Author

Level 2

Is the bank required to issue the borrower a 1099c if the buyer back is framed as a settlement verses debt forgiveness?

Mike9241

Level 15

the terminology doesn’t matter. the tax consequences are the same. if you settle debt for less than face value and the difference is $600 or more the bank is supposed to issue a 1099-C

Mike9241

17434976Author

Level 2

My understanding is that a debt which was improperly originated the loan itself is improper and it’s release is not taxable as with instances of predatory lending.

Mike9241

Level 15

the IRS focuses on whether the transaction is a bona fide loan and whether the debt is forgiven. you may have certain legal rights but the loan being predatory does not automatically make the forgiveness nontaxable.

if you get a 1099-C consult a tax professional to see if the forgiveness can be excluded under IRC code section 108

not that this comes from IRC section 108 but paragraph E) probably does not apply because the date is past 1/1/2026. however, who knows what Congress and the president may do to expiring tax laws

the indebtedness discharged is qualified real property business indebtedness, or

(E)the indebtedness discharged is qualified principal residence indebtedness which is discharged—

(i) before January 1, 2026, or

(ii) subject to an arrangement that is entered into and evidenced in writing before January 1, 2026.

Mike9241