Chances are, you have heard of being “taxed to death.” While it is clearly just a silly expression, it does have a ring of truth to it. We pay taxes on things we buy, we pay taxes on the money we earn, and we pay taxes on the property we own—and the taxation will go on, without end, until we stop earning, stop buying, stop owning, or simply stop living.
If you have recently received a debt discharge via a successfully filed bankruptcy in Arizona, you are about to learn a whole new world of taxation—taxes on debts which you have settled or been forgiven. And while it may seem strange, the government views discharged or reduced debt as income you have received, which means (have you guessed it?) that you must be taxed.
If you were discharged of any debt in which your principal balance was over $600 after your Phoenix bankruptcy, the lender in question will send you a 1099-C form to fill out and file with your taxes. While there are some exceptions—such as insolvency or debt that was considered deductible before your bankruptcy—but generally speaking, you will end up reporting a fair amount of your discharged debt to the IRS.
For the many Arizonans affected by foreclosure, there is some relief thanks to the Mortgage Forgiveness Debt Relief Act. For mortgages that were used for your primary residence and were canceled between 2007 and 2012, a tax exclusion of up to $2 million will generally apply.
If you are considering filing for bankruptcy but have questions about what your tax situation will be come April 15, our Phoenix bankruptcy attorneys are here to help you. Call Curry, Pearson & Wooten today at 602-258-1000 to discuss your questions and concerns with an experienced lawyer today.