Each year literally billions of dollars go as unclaimed money from federal and state governments, financial institutions and companies no longer generating activity. These can include tax refunds, savings or checking accounts, stocks, uncashed dividends or payroll checks, traveler’s checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds and life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and contents of safe deposit boxes. Continue reading
by Cindy Toran, Tax Manager
How does cancellation of debt become tax free? Is Federal versus Massachusetts different?
Generally debt forgiveness for a borrower who is personally liable on a loan is taxable income unless one of the following exceptions applies per Federal tax law:
- Occurs under Title 11 bankruptcy
- Occurs when the taxpayer is insolvent (Debts greater than Assets)
- Is qualified farm indebtedness
- Is qualified real property business indebtedness (other than C-corporations)
- Is qualified principal residence acquisition debt (up to $2M for MFJ) – expired December 31, 2013
Massachusetts, however, did not adopt the exclusion for mortgage forgiveness on principal residence. Thus, for home mortgage cancellation of debt only one of the first 4 exceptions listed above will prevent the debt forgiveness from being subject to MA income tax.