Q: We have $31,000 debt cancelled from credit cards, do we have to file it all as income and pay taxes on it in 2023.
A: Ordinarily, canceled debt is considered income during the year in which it is canceled. Expect to receive a 1099-C from the organization canceling the debt. The IRS will cross-reference this to your tax return.
A:
If you had $31,000 of credit card debt cancelled, generally, this cancelled debt is considered taxable income by the IRS and must be reported on your tax return for the year in which the cancellation occurred. Creditors typically issue a Form 1099-C, Cancellation of Debt, which details the amount of the cancelled debt that you need to report.
However, there are exceptions and exclusions under certain circumstances, such as insolvency (where your total debts exceed the fair market value of all your assets) at the time the debt was forgiven, or if the debt discharged was qualified principal residence indebtedness.
It's important to carefully review IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and consider consulting with a tax professional. They can help you determine if you qualify for any of these exclusions and how to properly report the cancellation of debt on your tax return.
Taking action to understand your tax obligations and exploring potential exclusions can help you manage the impact of this cancelled debt on your taxes.
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