Bankruptcy Law Questions? Ask a Bankruptcy Lawyer Now.
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Cancelled debt through a bankruptcy does not have to be listed on your return as income,
a 1099 c for canceled debt after a bankruptcy discharge is not considered income
Even on rental property? I was told to report the cancelled debt on line 21 (1040) fill out form 982 and report the sale on 4797.
IRC section 108 provides two pertinent exceptions. They include discharging the debt in bankruptcy and being financially insolvent just before the time of forgiveness. Insolvency simply means that the value of the taxpayer’s debts exceeded the value of the taxpayer’s assets immediately before the forgiveness of debt. The IRS has form 982, entitled “Reduction of Tax Attributes Due to Discharge of Debt,” that can be filed with a return to indicate the exception.
When the forgiveness of debt occurs in a bankruptcy case, Internal Revenue Code section 108(a)(1)(A) specifically provides that it is not to be treated as income. Thus, discharge of a debt through a bankruptcy proceeding is excluded from gross income for tax purposes.
You Can file IRS form 982, and claim the bankruptcy exemption
Ok Thank you.
You can also write a simple letter to the IRS supported by a photocopy of the bankruptcy discharge order and the schedule containing the specific debt.
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