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I have a credit card debt that was charged off 7 yrs ago in

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Dec. and per credit reporting...
I have a credit card debt that was charged off 7 yrs ago in Dec. and per credit reporting laws should be removed on Dec. I just received a 1099 satating that the debt should be added to my income. Is this legal since it was charged off and should be off my credit? Do I have to claim it as income. If it was an active account and not charged off I might could see it. What is the legality and do I have to claim it?
Submitted: 5 years ago.Category: Tax
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2/1/2012
Tax Professional: Lev, Tax Advisor replied 5 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,689
Experience: Taxes, Immigration, Labor Relations
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Hi and welcome to Just Answer!
The amount of debt forgiven is reportable on 1099-C - http://www.irs.gov/pub/irs-pdf/f1099c.pdf - generally is taxable, unless any exemption apply -- you should file a form 982 - www.irs.gov/pub/irs-pdf/f982.pdf - to proof your exemption - and might exclude all or part of canceled debt from taxable income.

For property that is not your primary residence, forgiven credit card debts, car loans, etc - you may exclude from taxable income if you are insolvent.

To proof your insolvency for tax purposes - you need to fill the form 982 and attach it to your tax return. You are not required to provide any additional proof, documents or appraisals.

If you are insolvent - you may simply exclude the forgiven debt from your taxable income - that would be a simple option.

If you was insolvent before the debt was canceled - yes - you qualify for exclusion.

The Internal Revenue Code defines insolvency as the excess of liabilities over the fair market value of assets. - http://www.law.cornell.edu/uscode/26/usc_sec_26_00000108----000-.html

For exclusion from tax liability - you need to determine your insolvency just before the debt is canceled.

You do not need to file for bankruptcy protection to be considered insolvent. To determine your insolvency - use the worksheet on the page 6 in this publication - http://www.irs.gov/pub/irs-pdf/p4681.pdf
Use all amounts and values BEFORE the debt was forgiven.

Just fill the worksheet - and it will be clear if you are insolvent - that will take a few minutes.

Let me know if you need any help.

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