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Taxtom
Taxtom, Accountant
Category: Finance
Satisfied Customers: 2340
Experience:  25 Years in preparing Personal and Business Tax Retuns
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I received 1099 from credit card companies after settlement

Customer Question

I received 1099 from credit card companies after settlement and paying off my debt. How should I handle this issue in regards XXXXX XXXXX income tax return? Is any way to avoid paying taxes on it?
Submitted: 3 years ago.
Category: Finance
Expert:  Taxtom replied 3 years ago.

Taxtom :

Hello, You must report the amount in the other income line at the bottom of the income section unless you were insolvent at the time. If you think you you were insolvent here is a link to a publication 4681 on cancelled debt, you will find a worksheet to calculate your debts and assets. http://www.irs.gov/publications/p4681/ch01.html#en_US_publink1000244090 Thanks Tom

Expert:  Taxtom replied 3 years ago.
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Customer: replied 3 years ago.
Sorry for delay.
Hope you be able to help me with these questions.
I am filling income tax return on TaxAct online and not sure how to do it.
1. Discharge of indebtedness to the extent insolvent (not in a title 11 case)- is this what I should mark?
2. Total amount of canceled debt excluded from gross income - total from 1099-C? I just received 2 of them so far. I had 3 more debt canceled. Should I wait?
3. Treatment of Real Property, answers yes, no, not applicable - is this a last one?
4. Enter the amount excluded from gross income that you elect to apply first to reduce the basis of depreciable property - ????
5.Reduction of Tax Attributes - ????

BTW, is canceled debt the same as settlement? In my case just part of debt was canceled. After reading info from you I was thinking that maybe I shouldn't have paid my debt at all.

Thx for your help.
6. Reduction of Basis - ????
7. Reduction of Tax Attributes - ???
Expert:  Taxtom replied 3 years ago.

Hello, You are talking about filling out a 982. First you must have been insolvent at the time the debt was settled. 1.Even though you didn't have enough income to pay the debt doesn't make you insolvent. There are two items that keep most people from being insolvent, 1. Equity in their home and 2. The value of their retirement accounts. First fill out the worksheet to see if you qualify. Next, if you do meet the insolvent rule than most tax atributes will not effect you unless you run your own business. You will need to include all of the debt on the return so yes will have to wait for the other 1099's, check with the other companies and see if they are send you a 1099. 2.The excluded debt would be the total of all of the 1099c/. 3. This indebtness is not from Real Property (Real Estate) so the answer is no. 4. This also will be zero unless you own a business. 5. Again unless you arein business you do not have to worry about tax attributes. Debt can be cancelled in 2 ways, the creditor for their benefit offers to reduce your debt if you pay it off early and second you make an agreement to pay the debt for less than you owe. In the first instance the company does not send you a 1099c and does not claim the loss on their tax return. Your is the secound instance and even though it was a settlement they wrote off part of your debt and claim the loss on their taxes and issued a 1099c. Thanks Tom

PS once you are finished answering the question on your tax software print out the 982 and be sure it has recorded everything the way you intended it.

Customer: replied 3 years ago.
do I need to send worksheet to IRS proving insolvency?
Expert:  Taxtom replied 3 years ago.
Hello again, No you do not need to send the worksheet but you need to have it in your files in case they request it. Tom
Customer: replied 3 years ago.
Worksheet includes info about real estate. Property I own together with my wife. How this effect my insolvency? There is no equity in a property and she has a credit cards debt as well.
thx.
Expert:  Taxtom replied 3 years ago.
Hello, You would list your 1/2 of the property value as well as the 1/2 of the mortgage. Thanks Tom
Taxtom, Accountant
Category: Finance
Satisfied Customers: 2340
Experience: 25 Years in preparing Personal and Business Tax Retuns
Taxtom and other Finance Specialists are ready to help you
Customer: replied 3 years ago.
Thank you very much. You were very helpful.
Expert:  Taxtom replied 3 years ago.
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