taxes on forgiven amount

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Originally Posted by Anonymous Hi , I am considering debt settlement. How can they tax you on a forgiven amount and why? and how much tax could i exspect to pay on $15000. ? Thanks in advance

Yes, the IRS considers the debt you haven't paid back as your income. The amount that you wouldn't pay back to the creditor would become your DOI income or discharge of indebtedness income.

Supposing you settle your $15k debt at 50% so your saving on the debt, i.e. $7. 500, would become taxable.

However, there are ways to avoid paying taxes on this saved sum, one such is filing for pauper's affidavit. You may have to consult a tax professional to know more about your options.