Updated: Sep 14
Form 1099-C: Cancellation of Debt is required by the Internal Revenue Service (IRS) to report various payments and transactions made to taxpayers by lenders and creditors. These entities must file Form 1099-C if $600 or more in debt was canceled or forgiven.
What does a cancellation of debt do to your taxes? "In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs." -irs.gov
When you receive this form, you’ll need to include it on your tax return for the year. In many cases, that forgiven balance will be considered taxable income. The only exceptions to that rule where you may not be taxed include:
The forgiveness is a gift from a friend or family member
The discharge was a result of bankruptcy
You received the cancelation under a certain student loan forgiveness program
It’s a farm or business-related real estate debt
This depends on how the debt was “forgiven.” For example, if you made a settlement with your credit card company, that means you made a deal with them to pay a percentage of what you owed. That can be in a lump sum or installment payments, depending on the agreement.
In this case, the 1099-C you received will show the remainder of the balance you didn’t pay. You will not have to pay this back, but you may have to claim it as income to the IRS.
In any case, it’s a good idea to hire a tax professional who can help you determine your tax liability
read more at: www.attorney-newyork.com