Insolvency
I settled a $21,000 credit card debt for $5,000 December 2010. At that time (and now) I have another credit card with a $6,000 balance, a $352,000 1st mortgage, a second mortgage of $40,000 (I haven't been able to pay on this for a year) The first mortgage was modified and I am only paying on $200,000, but the remaining $152,000 has not been erased, just set aside for now. So my total Debt including settled credit cards is $ 419,000. My house is upside down, value at $185,000. I had a Simple Ira with $ 18,000 in it. My 2 cars may be valued at $10,000 combined. I have no other savings or money. My home furnishings and etc. are old and may value at $10,000? Total Assets $ $228,000. I was told that I would not be taxed on the credit card debt settlement because I was considered insolvent. I just had my taxes done and was told that insolvency could only be applied to debt forgiven that was tied to a secured property. Because this was credit card debt, the insolvency rule didn't apply. I now owe $2,000 in taxes. Is the information from my tax preparer correct?
Thank You
Dee K/
It's my understanding that you should have gotten a form 1099-C
It's my understanding that you should have gotten a form 1099-C for $16000. This would be reportable as income. Please see IRS Form 982 and the worksheet here http://www.taxgirl.com/wp-content/uploads/2009/04/insolvency.pdf. I am not going to state whether you are or aren't insolvent. I am giving you some tools to decide for yourself.
You are insolvent!!!! Please read the instructions of the 982 fo
You are insolvent!!!! Please read the instructions of the 982 form. You have to go all the way to the end separate from the section on Bankrupcy. Just jot down assets in one column then assets in the other and substrate the liabilities from the assets.Then you state the following: I was insolvent to the amount of ( the amount of the substraction) on (date of the amount debt cancellation) of the amount of the debt. Therefore, I am not including the 1099-c on my tax return as income.
Insovency
Thank you both. I did receive a 1099. I also believe based on the criteria for insolvency that I would be considered insolvent. The question I have is if I am considered insolvent, would that apply to credit card debt settlement? My tax preparer says that insolvency cant be applied to credit card debt because the IRS only allows insolvency claims on debt tied to secured property. Because credit card debt is revolving, I have to add the amount forgiven to my income and pay taxes on it. Is that corrrect? Or if I am insolvent, can I include credit card debt? Thank You.