What to Do if You Get a 1099-C

WHAT TO DO If You Get a 1099-C *#%@!? I have to pay tax on forgiven debt? What do you do if you get one? To avoid paying taxes on the amount of forgiven debt reported, you must show you qualify for an exclusion or exception. Here are three. What is a 1099-C? A 1099-C is sent by a creditor or collector if they have forgiven debt you owe, or if they have determined a debt you owe is no longer collect- ible. A copy is sent to the IRS. The IRS expects you to include the forgiven debt as part of your taxable income unless you can show you qualify for an exclusion or exception. Cancellation of mortgage debt Debt canceled due to insolvency Under the Mortgage Debt Relief Act of 2007, you may exclude this amount from your income if you modified your mortgage with a reduction in principal, sold your home in a short sale, or you went through foreclosure. You may be insolvent to the extent that your liabilities (what you owe) are greater than your assets (what you own). If your total debt exceeds your assets when the debt is canceled, some or all of the canceled debt may not be taxable. • Applies to debt forgiven in calendar years 2007 through 2012. Example: • Up to $2 million of forgiven debt is eligible ($1 million if married filing separately) "one of the most serious problems facing taxpayers" Your Debt $45,000 • Only applies to debt used to acquire or improve a principal residence (not second homes or investment properties) Your Assets $40,000 The National Taxpayer Advocate, Nina E. Olsen, listed 1099-Cs as one of the most serious problems facing Taxpayers in her 2010 Annual Report to Congress. Your Insolvency $5,000 O Debt canceled in bankruptcy In this example, you may not have to You are not required to pay taxes on debt discharged in bankruptcy. pay taxes on 10o99-C income totaling $5,000 or less. Tip: Box 6 on the 1099-C should be checked! 1099-Cs Filed 1,938,520 IRS 2008 982 What to do next? 2009 2,673,661 2010 Projected: 2,819,300 Use IRS Form g82 to demonstrate why you don't have to pay taxes on the amount shown in the 1099-C. 47% Get Help From a Tax Professional If: You aren't sure whether you qualify for an exception or exclusion. Credit Card Debt You don't understand how to fill out Form 982. The 1099-C you received is wrong and the sender won't correct it. Main source of debt cited on 1099-Cs in 2008 ©2011 INFOGRAPHIC BY CREDIT.COM SOURCES: THE TAXPAYER ADVOCATE, IRS STATISTICS %24