Basically, even cancelled or “forgiven debt” from a lender is still taxable income, according to the IRS. As such, it must be included as income on your tax return.
Debts which you are personally responsible such as credit card debt, mortgages and some student loan debt are included.
When that debt is “forgiven” that is canceled or “negotiated down”, meaning you pay less than you owe, you will receive Form 1099-C: Cancellation of Debt. This shows the amount of debt canceled or forgiven. If you have a debt that is jointly shared with others they also must file a Form 1099-C showing the entire amount of the canceled debt. Creditors who forgive $600 or more of debt are required to issue this form. You must report any taxable canceled debt reported on Form 1099-C as ordinary income on.
There are always exceptions or exclusions. The ORT Consulting Group can advise and guide you through the maze of financial issues legal responsibility.