Discharge of Indebtedness Relief

Normally, debt forgiveness is taxable and a taxpayer can expect to receive a 1099 for forgiven debt. However, the act provides tax free discharge of indebtedness for Katrina victims if:

1. The debt is forgiven after August 24, 2005 and before November 1, 2007
2. The debt is a non-business debt
3. The debt is NOT secured by real property located outside the affected area
4. The taxpayer had their principal residence in the core disaster area as of August 25, 2005 or in the affected area if they sustained economic loss.

From December 2005

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