Unwelcome news: Cancelled debt is taxable
Last week we reported on Bank of America’s plan to forgive a portion of the mortgage debt of up to 45,000 mortgagees, at an average savings of more than $60,000 per loan. The Obama Administration also has discussed mortgage forgiveness as a possible option to help underwater borrowers move forward and out of trouble.
If you were able to arrange to have some or all of your credit-card, mortgage, auto or other debt forgiven in 2009, you may have assumed you had dodged a bullet. Unfortunately, the IRS has another bullet awaiting: a tax bill.
Forgiven debt is considered taxable, according to the IRS.
You probably already have received an IRS form from the lender called a 1099-C. Credit and debt collectors who agree to trim at least $600 from a debt must file with the IRS, and to send borrowers a copy as well. And borrowers have to include that forgiven debt on their 1099s as income.
Here are some tips on how to cope:
• If you’ve received such a form, talk to a tax preparer about your eligibility for an exclusion. The IRS offers several exclusions for which you may apply, particularly related to mortgage forgiveness.
• If you see mistakes on your 1099-C, call the lender to ask for a corrected copy.
• If you know you had some canceled debt but don’t recall receiving a Form 1099-C, call the lender to request one. Just because you didn’t get it or can’t find it doesn’t absolve you of the tax.
For more on preparing, filing, and, most important, saving on your taxes, check out our Consumer Reports Tax Information.
Similar Posts:
- Same day Loans: apply online to attain quick cash with ease
- Debt Warning Signs and How to Get Out
- New hints of relief in local housing
- Things to Have Removed from your Credit Report
- Loans for DSS: Viable source for fulfilling extra cash need
Recent Comments