If it’s been a rough couple of years for you, you’re not alone. Maybe your income was cut, you lost your job, or you had large expenses like medical bills. You may have fallen behind on bills, fielded collection calls and managed to settle some of your debts for less than the full balance you owed. You’re hoping the worst is behind you. But then, to add insult to injury, you’ve received a 1099-C Cancellation of Debt form in the mail listing the forgiven amount. Suddenly, you’ve got a potential tax nightmare.
The Mortgage Forgiveness Debt Relief Act:
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2014. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).
Germany won’t spare Greek pain:
If you settle a debt with a creditor for less than the full amount, or a creditor writes off a debt you owe, you may owe money to the IRS. The IRS treats the forgiven debt as income, on which you may owe income taxes. Why the IRS Can Assess Taxes on Forgiven Debts Here’s how it works. Creditors often write off debts after a set period of time — for example, one, two, or three years after you default. The creditor stops its collection efforts, declares the debt uncollectible, and reports it to the IRS as lost income to reduce its tax burden.
6 exceptions to paying tax on forgiven:
Exclusions mean you may not have to count some canceled debt as income If you had debt forgiven, wiped out or negotiated down (by paying less than what you owed) last year, you may have breathed a sigh of relief. What you may not have been aware of, however, is that you are generally required to count that forgiven amount as income on your tax return. Or are you? Before you write a check to the IRS — one you probably can ill afford — see if you qualify for one of these six exceptions to paying tax on forgiven debt: Exception 1
Forgiven credit card debt is often tax:
Forgiven credit card debt may be taxable income If you thought your money woes ended last year when you settled that credit card debt, think again. For many consumers with debt problems, after the debt collector leaves their lives, the taxman arrives. Months after successfully resolving credit card debts, consumers may receive 1099-C ‘ cancellation of debt‘ tax notices in the mail. Why? The IRS considers forgiven or canceled debt as income. Creditors and debt collectors that agree to accept at least $600 less than the original balance are required by law
Las Vegas Debt Settlement Attorney:
Should I Attempt to Settle My Debts With My Creditors? Should you decide not to file bankruptcy, you can hire our firm to negotiate a settlement with your creditors. You must have some funds available to pay off the settled amount to your creditors over time (usually 3-5 years) or be able to pay lump sum payments to each creditor that we settle with. Do not waste your money if you are not diligent and self-disciplined about saving and paying off debt. It has been our experience that unless you are able to save and pay off the creditor over time for the settled amount.
Attorneys that settle debt:
If you need a professional to assist you, then you should consider a debt settlement attorney. They specialize in negotiating with your creditors to lower and possibly eliminate the amount of debt that you need to pay your creditors. A debt settlement attorney will tend to focus on unsecured debts like credit cards, department store cards, and medical bills. How does an debt settlement attorney differ from a credit counselor? Credit counseling agencies and debt settlement attorneys offer very different services. The tactics, skill sets and experience.
Debt settlement is rarely a done deal:
When I’m asked, ‘What do you think of debt settlement?,’ I cringe. I gird myself for a frustrating discussion with desperate debtors looking for a quick fix to a problem they’ve spent years creating. They want to get rid of their debts as easily as baking a potato in the microwave. They want the phone calls to stop. They want the letters to stop. They need to get rid of the stress they are experiencing. And so they want to believe – need to trust – the advertising from debt-settlement companies that claim a significant reduction.