I attended a tax seminar in New York today. I know, I live this wild, exciting life! One of the presenters pointed out a very good point. It is vital that you look at your state tax treatment on the cancellation of debt. While Federal tax law now says you can defer this gain many states do not agree. (Click here to see my previous post regarding the Federal break on the cancellation of business loans.) You could very well have a state tax burden on your canceled debt. Many states that normally base corporate tax on Federal law are “de-coupling” on this issue. This is a tax term that means the state is specifically excluding this break. California is one big state that has not added this break. In the current economic climate, with states desperate for tax dollars, it’s a good bet that most states will not give you benefit of this Federal tax break.
[...] with the appropriate tax return the entire COD income is taxable in the current year. UPDATE: Click here to see my post regarding the state tax implications of this matter.Bookmark: IRS Circular 230 [...]