Thank you for the clarification. Also thank you for your patience. I wanted to confirm this before responding.
Unfortunately, debt that is "cancelled" as a consequence of the running of the Statute of Limitations is considered taxable by the IRS.
However, you will not declare this as income on your return until you receive a 1099C form from the lender. The 1099 C form alerts the IRS that the debt has been cancelled and why. In regard to debt cancelled due to the Statute of Limitations the code indicated will be Code C. Code C is for:
"Code C — Statute of limitations or expiration of deficiency period. Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired."
You can read more about this in detail here:
It is the obligation of the lender to issue you the 1099C. If they do not you should contact them.
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