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How does the IRS treat debt that is forgiven?

April 26, 2017debt forgiven IRS treat

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How does the IRS treat debt that is forgiven?

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Financial institutions sometime provide a Form 1099-C if a forgiven debt amount exceeds $600. Please note: If you receive a Form 1099-C showing income in the form of canceled debt, this does not necessarily mean you owe taxes on the forgiven portion of the debt. In most cases, clients can legally and ethically exclude forgiven debt from their income through the “insolvency exclusion” provided by the IRS code. This means your liabilities exceed the fair market value of your assets (i.e. you owe more than you own). We recommend that you consult your tax advisor regarding your particular circumstance and to assist you on filling out Form 982 that excludes you from the particular debt.