Hello and thank you for using Just Answer
Cancellation of Debt is taxable but can be excluded from income if it is on your main home or you are insolvent at the time of the cancellation.
What do you mean "insolvent" at the same time?
You are insolvent when your total debts are more than the fair market value of your total assets.
so if I still have a home and there is a 1099-c for 70,000 that means I have to include $70,000 to my income?
But if I Owe $520,000 on my house but can only sell it for $300,000 then It's not worth what i owe.
What would be considered assets?? House, Car ... what else. Went through divorce and sold or lost most all...
still paying payments on truck
If the cost of the property shows a loss then that will not be a gain on the foreclosure. Yes, all the things you mentioned are assests. Including any bank accounts that a person would have. I have a worksheet to calculate insolvency. One minute
When you say "your total debts are more than the fair market value of your total assets" does that mean all the other debt included OR just the amount on the 1099-C
http://www.irs.gov/pub/irs-pdf/p4681.pdfLook on page 6
So that means if I still owe $60,000 and the 1099-C is for $10,000 and I have no other assests to speak of am I insolvent
When you owe more than you have you are insolvent. This means when you owe from all debts and you count all assets
I see.... so I still enter it on my taxes BUT there will be a worksheet and it will not affect it. is that correct?
The IRS publication I sent you explains everything and has examples too that help to explain how to use Form 982 to get rid of the debt if you are insolvent. The form 982 is where you would enter the 1099C amount and the reason that you are not showing it on your return.
If you are insolvent then the amount will not be shown on your actual 1040. You would use Form 982 to report the 1099C and the amount that you are not showing as income on the 1040. You are required to report the 1099C but if you are insolvent or it is your main home then the Form 982 is used to report so the amount is not added into your income and taxed.
It semms that it would be easier just not to report the 1099C but the IRS gets a copy of it and they do not know the circumstances. So, the Form 982 is used to report the 1099C and show why you excluded it form income. This way the reporting requirement is met but yo are not taxed.
Sorry about spelling. Fat fingers today I guess and no spell check in CHAT
No problem... ;-)
Okay, because there will sure to be more of these coming in the following years.
So as long as I owe more than what I have in assets.... I do not have to claim as income?
You will use the Form 982 and make sure that you look over the publication I sent you a link to. This area can be tricky so you will want to make sure that you understand your situation.
okay, thank you...
Depending on how much debt you have over the assets will determine how much you can write off or exclude and what you used the property for will also determine if you need to show the foreclosure on another place in the return. If you sold a property that you used for business then you have to show a sale
This will mean that you may need to use Schedule D and if the sale was less then your basis there will be no gain to report about the 1099C.
You are welcome. Come back if you need more.