Sally and Ed each own property with a fair market value less than the amount of

Question

Sally and Ed each own property with a fair market value less than the amount of the outstanding mortgage on the property and also less than the original cost basis. They each were able to convince the mortgage holder to reduce the principal amount on the mortgage. Sally's mortgage is on her personal residence and Ed's mortgage is on rental property he owns.

Assume that under the current system of measuring income, each of these taxpayers realized income from the reductions in the mortgages. Should either of these taxpayers be permitted to exclude any of the debt reduction income?

Explanation / Answer

Sally only allows to exclude to pay tax on the reduction amount, but Ed has to pay tax on the total value of the home and he can not escape from it.

sally can exclude the reduced amount while paying tax, but Ed can not do it. he has to pay tax.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.