Douglas Tax Blog. U.S.A. NSTP
Debt cancellation usually results in a 1099-C issued to the taxpayer for taxable income. The Mortgage Debt Forgiveness Act, which treated the debt forgiven on your primary residence as nontaxable income, expired on December 31, 2016 and has not yet been reinstated by Congress and may not be. If you had debt forgiveness from your mortgage company or had a loan modification then you may receive a notice for debt cancellation.
Taxpayers with debt cancellation can often exclude the cancellation of debt income to the extent they were insolvent immediately before the cancellation. If a cancelled debt is excluded from income, it is nontaxable. Generally, cancelled debt that is excludable from income is debt that is discharged in a bankruptcy. Cancelled debt is settlement of a debt for less that the amount owed. A debt may be cancelled by a lender voluntarily or through bankruptcy or other legal proceedings and may result in ordinary income from the sale of assets.
If your lender foreclosed on your mortgage or repossessed property as a result of a defaulted loan then each borrower will receive From 1099-A if, in full or partial satisfaction of the debt, they acquire an interest in your property. You need not be in the business of lending money to be subject to this reporting requirement. If your lender cancels or forgives a debt, it must provide the borrower with Form 1099-C, showing the amount of cancelled debt to re reported as income. Generally, individual taxpayers must include all cancelled amounts, even if less than $600.
IF, in the same calendar year, a debt is cancelled in connection with a foreclosure or abandonment of secured property, you may not receive both form 1099-A and form 1099-C, cancelled debt, for the same debtor. You may receive form 1099-C only.
Nonbusiness credit card debt cancellation if non-business credit card debt is cancelled, the taxpayer may be able to exclude the cancelled debt from income up to the extent he or she is insolvent. Cancelled debt can also apply to a personal vehicle that is repossessed.