Question

Which of the following taxpayers is solvent? Jeanette, who owns assets with a fair market value of $7,500 and has no liabilities. Hector, who owns no assets and has liabilities of $12,000. William, who owns assets with a fair market value of $12,000, and has liabilities of $12,500. Mikayla, who owns assets with a fair market value of $6,000 and has total liabilities of $7,000.

Answer 1

A taxpayer is insolvent when his or her total liabilities exceed his or her total assets.

From the above mentioned only Jeanette is Solvent since she only has Assets and no liability. Rest for all, the Assets is less than the liablity.

The taxpayer determines insolvency immediately before the discharge of the debt. Insolvency, requires an examination of the owner/taxpayer’s assets and liabilities. Assets are included at the property’s FMV (not the cost basis). Liabilities consist of all debts of the taxpayer, including the debt being discharged.