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Is there any loophole to offset the tax that is generated…

Customer Question
Is there any loophole to...
Is there any loophole to offset the tax that is generated from 1099-Cs ? Received a very large amount this year and while we have a good bit of expenses it is no way enough to eliminate the taxes.
Submitted: 2 years ago.Category: Finance
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Answered in 6 minutes by:
2/4/2016
Financial Professional: Megan C, Certified Public Accountant (CPA) replied 2 years ago
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,608
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Thank you for your question,

There are some instances where you can exclude the 1099-C from income.

  • Debt canceled in a Title 11 bankruptcy case
  • Debt canceled during insolvency (debts greater than your assets)
  • Cancellation of qualified farm indebtedness
  • Cancellation of qualified real property business indebtedness

EXCEPTIONS to Cancellation of Debt Income:

  1. Amounts canceled as gifts, bequests, devises, or inheritances
  2. Certain qualified student loans canceled under the loan provisions that the loans would be canceled if you work for a certain period of time in certain professions for a broad class of employers
  3. Amounts of canceled debt that would be deductible if you, as a cash basis taxpayer, paid it
  4. A qualified purchase price reduction given by the seller of property to the buyer
  5. Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program

If you don't meet an exclusion or an exception, then there is nothing more you can do other than take your normal deductions. I'm truly sorry.

Please let me know if you need anything additional. If not, please rate positive.

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Customer reply replied 2 years ago
It is from exception number 5 but not sure if it is specifically tied to the performance aspect. it is a principal reduction but not sure of the specifics.
Financial Professional: Megan C, Certified Public Accountant (CPA) replied 2 years ago

Option 5 simply means that you are in a program with your mortgage where you have part of it forgiven if you meet certain criteria that you agreed on with the lender. Take your agreement and information to a tax preparer and they should be able to tell you for sure. If it's option 5, you can exclude the debt from your income.

Please let me know if you need anything additional. If not, please rate positive.

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