The effective rate is so much lower than the top rate for several reasons.
Loss for personal residence, non-deductibleConsiderations for rental real estate Owners of rental properties often have accumulated suspended passive activity losses that can be applied against the income from a debt cancellation with respect to the rental.
Losses from the sale of income-producing properties may be deductible as ordinary losses under Internal Revenue Code Section The loss is reported on Form The loss may offset cancellation of debt income. Taxpayers other than C corporations may elect to exclude cancellation of "qualified real property business indebtedness" from taxable income.
Internal Revenue Code Sections a 1 D and c. This is mostly debt incurred to acquire, construct, reconstruct or substantially improve real property used in a trade or business.
An IRS Chief Counsel notice stating that rental real estate is considered to be used in a trade or business provided the taxpayer didn't use the property for more than 14 days in the taxable year hasn't survived as good authority, so most cancellation of debt income for rental real estate probably won't qualify for the exclusion, unless the owner qualifies as a real estate professional.
The tax basis of depreciable real property is reduced for the excluded gain.
The amount excluded is limited to the adjusted basis of depreciable real property before the discharge. Exclusions for discharges of debt in bankruptcy in a title 11 case and up to the amount of insolvency are also available for cancellations of debt relating to investment real estate.
The tax basis of assets must be reduced for the excluded gain. California liability relief for Short Sales.
California enacted SBon July 11, Under this legislation, when a short sale is made of a California dwelling with not more than four units with the written consent of the holders of the deeds of trust or mortgage for the first deed of trust and junior mortgages, the lenders may not pursue the seller of the property for any deficiency on the mortgages.
In order to qualify for this relief, the seller must meet two requirements: A holder of a note may not require the trustor, mortgagor or maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale.
The seller isn't prohibited from offering a partial payment to a mortgage holder to get consent, but the seller must initiate the offer. The liability relief for short sales is superior protection compared to trust deed foreclosures for recourse mortgages.
For a recourse mortgage, the anti-deficiency protection only applies to the first trust deed when that mortgage is foreclosed.
A short sale gives the property owner more control over the process than a trust deed foreclosure. Since the lender doesn't have to consent to the short sale and has the option of pursuing a "long form" judicial mortgage foreclosure, including the ability to pursue deficiencies, it appears most California mortgages for residences other than for the original purchase of a principal residence will still be recourse loans.
Judicial foreclosures are very rare in California for residential real estate. But see below when refinancing was done after December 31, The legislation is a two-edged sword. More lenders might not consent to short sales since they are foregoing significant legal rights.
California extends nonrecourse protection when refinancing certain mortgages Governor Brown approved Senate Bill on July 9, Effective January 1,a refinancing for a California dwelling for not more than four families occupied entirely or in part by the purchaser will still be nonrecourse for the portion of the loan principal refinanced that was a purchase money mortgage.
See the section "How are foreclosures and deeds in lieu of foreclosure taxed? It's unclear whether the new rule will apply for subsequent refinancings or can only be applied once.ATTN: Tax Change - Ohio Estate Tax has ended.
The Ohio Estate Tax was repealed effective January 1, There will be no estate tax on estates of individuals .
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The Tax Policy Center estimates that some 11, individuals dying in will leave estates large enough to require filing an estate tax return (estates with a gross value under $ million need not file this return in ).
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