Gary Bode, CPA: If you’re out of your depth on a Cancelled Debt issue, consider calling us for a free initial consult at (910) 399-2705.
Cancelled debt CPAs think of Form 1099-C or Form 1099-A as adding insult to injury. The taxpayer had a tough year and the IRS seems to add more stress. How?
- IRS tax Form 1099-A, Acquisition or Abandonment of Secured Property, requires you to report, say for a rental property foreclosure, the gain or loss on Form 4797, Sales of Business Property.
- The cancelled debt reported on Form 1099-C, Cancellation of Debt, becomes taxable income on your IRS tax return, unless you can use Form 982, Reduction of Tax Attributes, to exclude it. So you’re taxed on money you never received. Seems unfair to most Folks.
Per the IRS: Generally, if you owe a debt to someone else, and they cancel or forgive that debt, you are treated for income tax purposes as having income and may have to pay tax on this income. (sic)
Please note I’m covering personal cancelled debt in this post. We handle S Corporation and Partnership cancelled debt too, but not here.
In my opinion:
- The first thing a taxpayer should do is read IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. That will you decide whether your specific circumstances allow an exception or exclusion on Form 982 to keep cancelled debt from becoming taxable income.
- Other sources of information include the directions to Form 982, Reduction of Tax Attributes, available on the IRS website.
- Then use Internet chatter to gain insight.
- Form 982 preparation doesn’t lend itself to generalizations.
- Each cancelled debt case is unique. So you have to learn how your particular fact pattern dictates Form 982 preparation.
- No one should accept Cancelled Debt as Taxable Income without working through the allowed IRS Exceptions and Exclusions.
“I suspect many 1099-C recipients pay taxes on Cancelled Debt despite being legally able to exclude some or all of it.”
- Gary Bode, cancelled debt CPA and Form 982 tax accountant
Form 1099-A, Acquisition or Abandonment of Secured Property
- Form 1099-A reports the transfer of an asset to the former owner and the IRS.
- Typically this would be:
- Rental property foreclosure or short sale.
- Your home’s foreclosure. short sale or loan modification.
- Use Form 4797, Sales of Business Property, to report the gain or loss to the IRS.
- The Fair Market Value (in) Box 4 of IRS tax Form 1099-A) sometimes becomes the amount of sale. Sometimes not.
- Form 1099-A, Acquisition or Abandonment of Secured Property, by itself doesn’t trigger cancelled debt.
- But a Form 1099-C usually follows Form 1099-A and that might be in a future tax year.
- If there’s immediate cancellation of debt the lender may skip issuing Form 1099-C.
- Form 1099-C triggers the same “sale” as the above discussion.
- Typically this would be:
Form 1099-C – Cancellation of Debt
The recession caused an amazing amount of cancelled debt. Supposedly 5.3 million Form 1099-Cs got issued for 2012. And we’re already seeing Form 1099-Cs in 2014. So if you receive a 1099-C, you’re not alone. If a creditor forgives or reduces your debt more than $600, they report it to the IRS and yourself, in January of the following year, on Form 1099-C. Common examples of cancelled debt reported on Form 1099-C, Cancellation of Debt, include:
- Cancelled credit card debt. Here’s a link to comprehensive 2013 personal credit card cancelled debt examples. Including Form 982.
- Car repossession.
- Home foreclosures short sales, and workout agreements.
- Rental property foreclosures, short sales, and workout agreements.
- Student loan defaults. Here are a few tax reporting examples for student loan cancelled debt.
Form 1099-C issues can include:
- The amount reported on Form 1099-C being incorrect, so verify it.
- The date of the cancelled debt is sometimes wrong. It seems some lenders revert to a 12/31 date. But because of the insolvency exclusion of Form 982 (see below), this date is crucial to avoiding cancelled debt becoming taxable income. So, obtaining a totally correct 1099-C is vital.
- Sometimes we must get the creditor to re-issue a correct Form 1099-C if there are errors.
- Sometimes your CPA can re-construct or change Form 1099-C if the original isn’t correct. And we document it thoroughly and present the calculations to the IRS as a supplement to Form 982. Don’t try this yourself.
- Another situation that pops up is the taxpayer not receiving the 1099-C. So they don’t report it on their tax return, which leads to a tax audit and demand for more taxes due.
Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals)
This is a well-intentioned IRS publication describing a complex topic. It quickly degenerates into accounting nomenclature and potentially confusing examples. Explanations on the Web don’t seem helpful other than for general background. Calling the IRS may be helpful, but multiple calls often yield contradictory advice. And you can’t rely on IRS verbal advice. Common situations covered in Publication 4681 are:
- Non-business credit card debt cancellation. Here’s a link to comprehensive 2013 cancelled credit debt examples.
- Personal vehicle repossession.
- Main home foreclosure or abandonment.
- Main home loan modification (workout agreement).
Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)
Well, here the title alone conveys the complex nature of Form 982 and the process for Cancelled Debt from taxable income. The tax attributes section of Form 982 are the hardest to understand. Exclusion or exception of cancelled debt from taxable comes at a cost. Sometimes Form 982 merely delays the tax on cancelled debt to the future when you sell an asset affected by Form 982. Ouch!
Forgetting the Underlying Sale on Form 1099-C
With short sales, foreclosures and repossession there’s a sales component that must also appear on your tax return. Calculation of the gain or loss is tricky. For example, folks seem to forget about accumulated depreciation on business assets.
Sometimes you need a Professional
Hi, I’m Gary Bode, a cancelled debt CPA with a virtual office to help you with Form 982 wherever you or your company are located. Many of our posts help folks prepare their own tax returns. Other posts try to help you decide when it is prudent to hire a professional. If you’ve done some due diligence and decide that you need help with a cancelled debt issues, please give us a call at 910 399-2705. I feel Form 982 is an area where some folks shouldn’t self prepare their return. Maybe riding a bike is a good analogy. Almost everyone can learn to ride, but most of us fall on the first few attempts.
Insolvency as an Example of an IRS Exclusion
The IRS has Exceptions and Exclusions that may allow you to avoid paying taxes on cancelled debt. Insolvency is one allowed exclusion. Publication 4681 has a worksheet that helps determine if you were insolvent just before the cancelled debt occurred.
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Your Blog is great! It gave me greater insight into this whole 1099-C area. I’ve self-prepared my entire life but am now facing a potential, significant tax consequences if I agree to a proposed “short refi” loan, because it includes significant debt forgiveness on my existing mortgage. There is no 2nd note on my house but the existing note included two cash payouts at closing (one to my ex and one to me). I used some of this payout to help me make my mortgage payments and repairs on the house (since I was paying a lot of money out for several years to attorneys). My fear is that I will claim exemption under the “Mortgage Forgiveness Debt Relief Act”, get flagged for an IRS audit, and then get my exemption claim reversed (with a large bill owed to the IRS).
what about the 982 A?
Dorothy, can you be More specific please?
Please help. .I’m on ssdi since 1999. I received 2 1099-c forms for charged off credit cards in the amount of 7, 000. I am married with a home. This debt is soley mine not my husbands. He is however retired on ss. I incurred this debt by trying to help my mother stay in her home at age 87.I was sole heir to her estate. At the time I believed her home was paid off and would pay this debt when she passed. She did pass away in 2010. I kept up payments as long as I could only to find out she took a reverse mortgage and found out she had no estate left. Technically I know the debt mine for thinking with my heart not my head. Do I have to claim this as income. Should we file separately. Do you think I could get an exclusion from claiming this as income or insolvency??? your input is greatly appreciated.
Ouch that could $1500 of tax due. Yes you must claim it. The insolvency approach for Form 982 is the most choice. Sometimes we start the return as Married Filing Sseperately. Then, if the circumstances allow, change it to a joint return. Hope that helps.
Thank you so much for your expertise and taking your time to answer. Could these taxes be spread over several years??? Again thank you
My editor doesn’t show the original question, sorry I can’t help Montana.
Dear Sir, I lost a rather large business that left me holding the bag with about 200k in personal debt. My chapter 13 was rejected, a 7 is too dangerous unless I get a divorce. this I the 6th year since the loss and so far 3 1099c’s have been sent to me, all from 1 company totaling 30k. I have 3 questions. Is it true that the companies can only issue a 1099c within the 6 years? Is it a good idea to fight these 1099c’s in court, if they are thrown out, they would not be taxable? Is there a way to see if I have missed any other 1099c’s, do they show up on my credit report? I am told that tax debt is difficult to include in a Chapter 7, even if I get the divorce. Please advise me, the IRS has no answers!
I just spoke with you Judith. The idea of going to court to force credit card companies to prove the debt is correct is innovative. I hope it works for you.
Mr. Bode, thank you very much for your informational site. I find it very helpful.
I have but one question concerning 1099-C for cancellation of debt.
Box 3 says “Shows interest if included in the debt reported in box 2. See Pub. 4681 to see if you must include the interest in gross income.”
I have looked up this publication at irs.gov but can’t seem to find this question addressed. Can you tell me how to know if I must include the interest on this cancelled debt in my gross income?
Hi John: I agree Publication 4681 isn’t clear on whether the interest in Box 3 of IRS Form 1099-C becomes taxable income. Note Box 2 includes interest (in Box 3) and principal. Depending on the particular circumstances, which I don’t have as yet, only Box 2 minus Box 3 becomes cancelled debt. Hope that helped. Give me more details and maybe I can further clarify.
Gary, please email any comments you have with reference to my question concerning interest in box w of 1099-C for cancellation of debt. Thank you, sir.
johnwilliamson77@att.net
Gary,
I had a car repossessed in 2007. My lender charged off the debt but I never got a 1099-c. I was doing some credit repair this year and about a month after I disputed a few things I got a letter from the IRS saying I owed 3300.00 for a 1099-C reported to them by the lender that repossessed the car in 2007. The were adding the 1099-C to the 2011 year taxes which changed my income thus creating the 3300.00 tax bill which I now have to deal with. I have two questions. first, why would the 1099-C go against my 2011 taxes when the car was discharged in 2007? second, if I go the insolvency route (which I was in 2007) would I do it for 2007 or do I have to prove it for 2011 because that is the tax year that is affected?
Thanks,
Darrin
Hi Darrin: Lenders issue late Form 1099-Cs all the time. My guess? The bank should have cancelled the debt in 2007 and they’ve violated IRS directives by issuing Form 1099-C late. But maybe not. I’m mot sure if we could amend 2007 even if the bank corrects the Form 1099-C. I’d see what potential effects amending 2011 with Form 982 offers. If nothing, then check to see if the IRS allows application to 2007 and then see if the bank will correct it. Hope that helps.
We sold three homes on short sale in 2012. One is a rental property from acquisition, one is converted from personal to rental and sold. Two n one half yrs after conversion and the third was personal residence at time of short sale wherein we have Lived two n one half yrs. we received 1099c on all of them wherein box 5 was marked we maybe liable. The tax preparer did use form 982 but claimed cancelled debts as income in line 21 “other income”. Because of this we paid $16K in taxes and our Medicare Part B went up by $50.00 per month. My first time to use a tax preparer and I honestly don’t know her well. Is there something you can advise me how to check her accuracy. I noticed in some schedules that she missed important deduction like $4174.00 mortgage interest in one Your help comment will be greatly appreciated. Thank you
I’ve sent you a personal e-mail.
Hello Gary,
I received a 1099-A for my rental property that was foreclosed one. Do I use the basis and FMV to compute the gain/loss or do I wait on a 1099-C sense the property wasn’t “sold”.
Thanks
Hi Carl. Form 1099-A, Acquisition or Abandonment of Secured Property, triggers the “sale” reportable to the IRS via Form 4749, Sales of Business Property. While Form 1099-C, Cancellation of Debt, can trigger the same sale, you have to report Form 1099-A this year. Hope that helped Carl.
I received a 1099-a form this year for a my main house that was foreclosed in 2013. I bought the house in 2008 and received the 7500 tax credit. ON form 5405 when I show that its not my main home and was foreclosed it asks me few questions about amount of cancelled debt, legal fees, and percentage. I called the bank and was informed until they sell the house threw HUD and take that amount from amount owed will not get a 1099-c until then. I filed chapter 7 Bankruptcy in 2012 and was discharged. Any help would be greatly appreciated I read form 4681 and honestly just makes it more confusing. Thanks for your time….
Hi Franz: I’d make sure your tax return reflects the “sale” of the house even though you shouldn’t owe any tax or deduct any loss. If you don’t they’ll come back and ask about. Better to be complete. Hope that helps.
I received two 1099-A from the foreclosure on my home in 2010. One for the first bank mortgage and another for the 20% down second(same bank) mortgage. They were both reported on my taxes in 2011. Apparently in 2011 Freddie Mac had taken it over and the difference between the foreclosure sale and amount I owed, from both first and second loan, was $45G and was exempted per form 982. This year 2013 the bank sent me a 1099-C for the $72G second mortgage.
I’ve been online and calling friends to try to figure this out. Please help me, what am I supposed to do with this?
Hi Grace: it sounds like I can get rid of the entire $72G in Box 2 of Form 1099-C, Cancellation of debt, by using Form 982. Maybe you need a CPA with lots of Form 982 experience this year. We’re virtual, so distance isn’t a factor. I don’t know any sites that offer comprehensive example for your situation. IRS Publication 4681 has some examples that might help.
I realize from reading more online that when I received the two 1099-A forms in 2011, I should not have added them to my taxes that year. And instead waited until I received the 1099-C for both loans. None the less, that year I submitted a 982 form using the primary homestead exemption.
Now my question is, do I resubmit form 982 for the 1099-C on the second mortgage loan on this year’s 2013 taxes? And should I expect to receive a future 1099-C on the first mortgage also?
I think you should amend the 2011 return Grace. We can handle that for you if need be. I do believe the 1099-C, Cancellation of Debt, will arrive, eventually. Hope that helps.
I received a 1099C for a credit card debt from 2004 They list the identifiable date as 12/31/13. How is this possible and am I liable to claim this as income for 2013? The debt was originally around $8,000, but in box 2 they have $17,592.24 with $2,027.87 in box 3. I was never contacted nor did they ever try and collect from me. Do I have a valid argument that this debt is past the 36 month waiting period?
Sorry John, yes Form 1099-C(s) often arrive late, although your example is extreme. I’m unaware of any three year rule. The IRS has specific guidelines as to when a lender issues a Form 1099-C. So maybe you can challenge it. It sort of sounds like the lender kept the meter running. I doubt the lender would cooperate. I’ve some success with getting the IRS to challenge these issues. Hope that helps.
Mr. Bode, I received a 1099-C for a foreclosed home that I had in Virginia. I live in Greensboro, now and I can claim insolvency but what does this do for my North Carolina taxes? Will I owe NC tax for the full amount of the 1099-C? Turbo Tax says I owe it but I didn’t owe any from last year when I declared insolvency for another debt. Thanks for the help.
Hi Ted: can’t help you with technical support on Turbo Tax. Maybe it’s just a multi state return?
hi, thanks in advance for your help, I received 1099c in box 2$50000 and box 3$27000 which one is the one I have to report, and can I do insolvency I only make like $20000 this year ,this 1099c is for a investment property that give me a loan modification.
Sorry John, this exceeds what I’m willing to answer in a post. You’ve got several issues here.
Hello sir. I received a 1099c. I did a deed in lieu on my home. This was my only home. I have no assets. I only have a car note. And three children. In box 2 78,031.14 in box 3. 0.00. In box 7. 100,000.00. I was wondering if this was taxable. And what do I have to do? Thank you in advance.
You should be able to exclude that entire Form 1099-C, Cancellation of Debt, through use of Form 982, Reduction of Tax Attributes. IRS Publication 4681 has a nice example for you. hope that helps. If not, I’m happy to prepare that tax return for you.
I received a 1099-c for year 2013 on a foreclosed home from Dec 2010. I realize I will not be taxed federally, but does NC offer the same “forgiveness?”
NC taxes flow from the federal returns Joe. So, I think the answer, if I’m understanding the question, is yes.
I just found out (after trying to settle an account that I did not know was closed) that I had two additional 1099C forms submitted to the IRS in 2011 for 2010 taxes. I turned in two that year but evidentally I had four and somehow failed to get notices. The IRS has never sent anything on this. It has been over three years. Did they just miss it or will I be hearing from them? Should I file an amendment. Bad thing is I am now single and was married the year these were left off my tax filing. I looked at my Wage and Income transcript for that year and sure enough four were sent to the IRS.
I hate it when I’m right Anita. I always tell folks the Form 1099-C will come. But sometimes in a future tax year. I can help you with the amended tax return Anita since your circumstances have changed.
Hi Gary, great informative website.
Hoping to enlist your services to help with a 1099C issue. I was issued a 1099C for ~$48K in tax year 2013. The debt is excludable at the federal level as a main home qualified mortgage debt exlusion, but North Carolina did not conform to this extension in 2013 so they want to collect taxes on this. I will not be able to claim insolvency in 2013.
After reading the IRS guidelines, I think the approach for me here is twofold. Insolvency is based on the financial condition immediately preceding the debt cancellation. In this case the lender took posession of the property in 2010, then closed my account, reported $0 balance to the credit agency and stopped all collection efforts in 2011. So my interpretation is that 2011 is the real tax year this should be effective in. The lender won’t modify the 1099C and made the statement that they have 36 months to file the form. While there is 36 month testing period in my understanding, my read is they should issue the 1099C when the debt is actually discharged, not willy nilly whenever they feel like it in a 3 year period.
In 2011 I would qualify for insolvency for at least a portion if not all the debt. Now, if this logic holds, and then 1099C is acually issued in the wrong year and should have been 2011… then I could use the main home exemption at both the state and local level negating the for an insolvency test. (Note: in 2011 I filed an insolvency claim to exlude a rental home foreclosure as well)
So, here I am now in 2013 needing to file taxes and not sure how to report this. Since there doesnt appear to be a mechanism for disputing a 1099C with the IRS, my internet research has led me to a few options.
1. Do nothing differnt: Report the 1099C as 2013 income as qualified mortgage exlusion and put the additive income on NC return and pay the extra state taxes (not happening if I can help it)
2. Claim mortgage exemption but explain as prior year: Report the 1099C as 2013 income on the federal return without a qualified mortgage exlusion, but also report an equal negative income with a rationale explaining the “back-out” as an adjustment accounting for the morggage exlusion in a prior year. This seems the most honest approach but seems like it would draw attention from the IRS.
3. Claim insolvency using prior year data: Report the 1099C as 2013 income and use my 2011 insolvency amount on the Form 982 to wipe out the 2013 debt. While this mixes two different exlusions up, it seems like I could just file this way and hope no one audits it. I wonder if the IRS will even care as none of the options impact the amount of federal taxes collected. If I get audited seems like the IRS would quickly realize that a change would yield no additional revenue for the IRS and move on to other problems.
4. Hoping you can provide me the best route here.
I left you a voicemail with my telephone number.
Hi Brian, we spoke by phone about this interesting Form 1099-C, Cancellation of Debt timing issue.
Can you please remove my last name on my previous post.
No Nancy but I deleted the comment. No worries
In May 2010 we filed for Chapter 7. We reaffirmed our mortgage within the Chapter 7. We had a 1st and 2nd mortgage. After our bankruptcy, we did a loan modification with our 1st mortgage and were able to keep our house. In 2011 we unexpectedly received a 1099-C on our 2nd mortgage.
We just pulled title on our home and both the 1st and 2nd mortgage are still on there. What does this mean. We thought that if the 2nd mortgage was cancelled, then the lien and title would be removed as well. Any insight you can give us on this would be greatly appreciated.
Sorry Tyler you’d have to ask an attorney. I just work all the tax angles not transfer of title.
Hi Gary,
I completed a short sale on my home in May of 2013, but only received a HUD-1 Settlement Statement and no 1099c.
While the HUD-1 form indicates a “Payoff” amount, I can’t determine the accurate amount to report as forgiven debt.
I’ve contacted both the bank and FHA multiple times in an attempt to get a 1099c, or at least to get the specific amount of debt I was forgiven. Neither of them have been cooperative in providing information, and both have insisted that they are not responsible for sending me a 1099.
At first, the bank said that there would not be a 1099 processed because the sale was under $250,000. Then they said there wouldn’t be a 1099 because they didn’t forgive any debt to me because they were reimbursed by the FHA.
When I spoke to the FHA servicing center, they first stated that they probably sent a 1099 to the bank, which would then be forwarded on to me. When I followed up for me clarification, they stated that, in fact, they did not need to process a 1099 for me, and told me to contact the IRS to determine if I’d have any penalty.
I’ve called the IRS a few times, but they were unhelpful in clarifying anything.
My best guess about my “cancelled debt” amount is the difference between the principal amount I owed on the mortgage as of my short sale closing date, and the payoff amount listed in my HUD-1.
Thanks for any insights or suggestions you can provide.
I think you’re on the right track BJ. But I would extend the 2013 returns and then pull the 2013 IRS transcript in May or so. Let’s make sure they didn’t receive on before submitting figures that don’t match their records. Hope that helped.
Hi Gary,
I did a short sale on a rental property in Arizona, bought it 270K (7/2006) (purchase money - 2 loans), sold 130K in 11/2013. I received a 1099C from the first with box 5 checked (which I think is wrong since in Arizona, purchase money is nonrecourse I believe) and 1099C from the second unchecked. The first refuses to reissue 1099C. Total amount on box 2 of the two 1099C is (138K). Can I use form 982 to exclude the entire amounts? I appreciate your help a lot! Thanks a lot for any help or suggestions!
Well Amy, I’d look at the loan documents to make sure you aren’t personally responsible. If you’re not I’d still present the Form 1099-C on the tax return but not include in taxable income. I frequently submit explanations in these type of cases. But if you are liable, there are two provisions on Form 982 to help you exclude the rental property cancelled debt from taxable income.
The house my now ex-husband and I bought in 2007 was a short sale in 2013, which is the same year we divorced, for $75k. It was our primary residence until the short sale. The 1099-C has both our names on it. However, it doesn’t seem reasonable for both of us to claim the full amount as income, since we’re not married any longer, and filing individually. I should be responsible for half. Not sure how to do this. Any advice or tips would be appreciated!
Thanks!
Megan
Well Megan, that sounds reasonable but you’re both responsible for the entire amount. If you half and the ex doesn’t, you’re on the hook for the other half. Ouch!
I just found a forwarded 1099c from a canceled debt in my pile of mail. I had just checked my transcript with the IRS and there weren’t any 1099s listed for the current tax year 2013.
I had made a settlement deal with the collections company in November 2012. Shouldn’t that date be the identifiable event ? I have a confirmation letter retroactively accepting this agreement on January 22, 2013.
Instead, the 1099 lists May 2013. (The month after my last payment in the arrangement). I thought I was going to have to revise 2012’s taxes and not worry about this until next week, e.g. after I conclude stressing out over filing this year’s taxes.
I think a 982c in either year will reduce my obligation as I have a junky car worth less than the debt not much personal property. The original debt+other debt(s) > assets…
Should I fight for a correction or just bite the bullet ?
Well Brad, my answer is based on listening to hundreds of people in your situation. I think the psychological advantages to just moving on with life sometimes out weigh the tax issues. So you could try to challenge the date on the 1099-C, Cancellation of Debt. But if you can negate the 2013 tax consequences through Form 982, Reduction of Tax Attributes, I’d ride with 2013.
Mr. Bode, I received a 1099-C on a rental property in the amount of $97,000 debt discharged and the FMV is $104,550. The debt description is Mortgage. This is for a rental/investment property that was foreclosed on that I could no longer maintain. The value of it decreased and I could not sale. I purchased the property back in 2006 for $138,000. I have a mortgage own my home (permanent residence), and own another rental property that I have a tenant in and am current in both. What is the best way to handle the 1099-C I received on my 2013 taxes? Thanks for your input!
It sounds to me like you have four issues Edward. The first is the final 2013 rental profit or loss, sounds like Schedule E from your post. Next you have a Form 4797 issue involving gain or loss on the foreclosure. The third is cancelled debt from Form 1099-C. Use Form 982 to exclude that from taxable income. And the fourth is adjusting your tax attributes (maybe) on your remaining assets. Hope that helps.
Hi Gary,
We received a 1099c for some equipment that belonged to my husbands business (an Scorp). He had personally guaranteed it and we had to allow it to go back to the bank. We had to dissolve the corporation and declare chapter 7 personally. This is the only 1099c we received, although there was way more debt besides that. We were personally insolvent at the time. Our accountant is not sure how to deal with the debt. there were a number of precautionary debts listed on our bankruptcy that belonged to the corporation and our attorney wanted to list them just in case the creditors came after us personally. Do we list them on form 982? What about personal debt to family members when the debt is forgiven but there will not be a 1099c? Our first and second mortgages, although we have kept up on payments and reaffirmed the debts? It’s all very confusing! Thanks! Also, if we include all of the above, we are insolvent by about $200,000. We had carried over a Loss of about $60,000. Are we unable to use that loss?
Hi Susan, does the Form 1099-C, Cancellation of Debt, list your Husband’s Social Security or the S Corp’s EIN? Was the equipment included in the bankruptcy discharge? I’m not a bankruptcy attorney. But the tax issues seem straight forward, or would be with more clarification. Would you like us to prepare the tax return Susan?
Thanks, it’s already in the hands of our CPA. The 1099c is in my husbands name and yes, it was named in the bankruptcy, but for some reason the amount named in the paperwork is $0. I think its because the amount had not been settled yet due to pending sale of the property by the creditor. Oddly enough, the document is dated the very day of our filing.
is it true that form 982 for cancellation of debt on primary residence is out as of 01/01/14 ?
thank you
It is true. But there’s some talk of Congress extending it Leonard.
Hello Gary,
I just came upon your blog while researching info for a 1099-C I received in 2012. I claimed this amount on my taxes using a form 982 when I filed in 2013. I just received a notice from IRS telling me that they believed that this should have been claimed as taxable income; they are requesting $1800+. I have the original form that I filed, but they are now requesting “a breakdown of total assets and liabilities before the debt was discharged”. I have 3 questions: do I need to include my retirement funds as assets? Can this be a spreadsheet document, or do I need to include statements as backup? (The notice says I can use a worksheet in pub 4681.) And if this debt was just mine, do I need to include my spouse’s finances, we filed married jointly that year.
Thank you for taking a minute to help us.
Hello. I’d use the worksheet in Publication 4681. The retirement assets are tricky. You have to include some types of plans and with some types of plans you don’t.
Hello Gary
First let me give you an overview.
In Feb of 2013 My husband was injured and did not work for nine months. We own a s corp and we are the only two shareholders. In Oct. 2013, 58,000 in corporate debt was “Charged off” the business and became personal debt.This was the term the Creditors used while trying to collect. (it was all personal guaranteed.) This debt included 2 credit cards and a business line of credit. One bank owned both the business line and one of the Credit cards. prior to 2013 we personally took a loan from the corporation in the amount of 21,000.
In Jan 2014, we personally filed chapter 7. the bankruptcy including all the corporate debt, the loan to shareholder and an additional 59,000 in personal debt. We were able to keep our home and car, but did not reaffirm these loans just kept paying on them.
After the bankruptcy was discharged in April of 2014, the business received a notice from a bank that held the business line that they want payment in full. when I mentioned the “Charge off” and the bankruptcy they said that the business was not included in the bankruptcy and stilled owed the money. So we settled. The total amount owed was 10,000 and we paid 3,000. they never mentioned the Credit Card that they also owned.
Questions
1. Should we have received the 1099-C for 2013 or will we get them for 2014?
2. Will we get any 1099-c from the mortgage company or car loan?
3. Can we move the “loan to shareholder” to bad debt to offsite the forgiven debt 58,000-21,000= 37,000
4. If we get the 1099-C in the business name do you let the income come over on the schedule k and then remove it using the 982 on the personal side because that debt was forgiven in the chapter 7 or do we fill out the 982 for the business?
there is no assets for the business (small home office and service based company) the corporation is still open.
Thanks for your help with this very complicated issues.
Well Marie, sorry you’re having problems. Some of this is too complex for a comment. Even if you don’t use me, please have someone well versed in cancelled and S Corp issues prepare the 2014 return.
Gary I’ll talk to my husband about using you. my biggest question is how do I prepare now so I don’t have a BIG surprise come April 2015. Is there anyway to figure this all out before the end of the year, with the all the different contingences?
Yes Marie, there is. We can extrapolate your expected 2014 and run alternate scenarios. Some of our fee reduces the actual tax preparation fee for 2014. Sometimes there are tax positioning strategies available.
Hi Marie. I would have to be retained to answer these complex issues. Sorry, it’s just too much for a comment. Call me if you’d like 910 399 2705
What does “awaiting moderation” mean? Am I suppose to do something, or have I stumped you?
I don’t know Michael. I do the best I can on comments.