Question Is "discharged debt" considered Taxable Income?

[BxRcvor]

Hi all! Long Time no Type. Things are getting better each day.

Quick question - I'm getting ready to prepare my 2023 taxes, I noticed I received a 1099-C from a bank that sponsored one of my fuel credit cards. I believe I had included this card in my "creditor" list when I filed CH 7. The 1099 indication was "Cancellation of Debt."

Which brings the question, Is cancelled/discharged debt from a Ch7 considered "Taxable Income" for IRS purposes? If it is, then I may have a Helluva tax bill coming Soon! So far. this particular cancelled debt is small (just around $1k). And I haven't heard anything else from the other creditors, so far (no other 1099-C's).

Is it true that cancelled/discharged debt is considered "taxable income" or is it just this one bank trying to screw me over?

Update: I Have checked the IRS website and discovered that "cancelled debt" is indeed taxable in most circumstances (there are exceptions). I don't believe I qualify for any of those exemptions, so.... I guess I have to wait and see which of my creditors send me a 1099-C. Thankfully, the 1099-C from the bank I mentioned above indicated the date of discharge as in 2023, so it's not like it's "late." Phewww. I just have to keep track of what taxes I could be paying.

[shipo]

No, if you received your discharge, then the debt is not taxable. If you then received a 1099-C from one of your former lenders, you need to file a Form 4835 with our taxes to indicate the debt on the 1099-C was discharged, and as such, not taxable.

[BxRcvor]

No, if you received your discharge, then the debt is not taxable. If you then received a 1099-C from one of your former lenders, you need to file a Form 4835 with our taxes to indicate the debt on the 1099-C was discharged, and as such, not taxable.

Are you referring to this IRS Form 4835?

https://www.irs.gov/forms-pubs/about-form-4835

This appears to be a form about "Farm Rental Income and expenses."

Perhaps, it's under a different form #?

And, just to be clear, you are saying that the "Discharged/cancelled" debt is not taxable, correct?

[justbroke]

Should be IRS 982 to reduce tax attributes due to discharged under Title 11 (Bankruptcy). At least that is what I think you are talking about.

[BxRcvor]

Should be IRS 982 to reduce tax attributes due to discharged under Title 11 (Bankruptcy). At least that is what I think you are talking about.

Thank you. At first, I thought it may have not applied to personal CH 7 bankruptcies, but I see that it applies to all bankruptcies under IRS title 11. I also see that there are a bunch of YouTube videos on the subject on how to fill out the Form 982.

What I have to do now is figure out if I can "segment" the cancelled debt. While it is true that the debt was all discharged in 2019, I'm still getting 1099-c's, well beyond that. The one that prompted me to start this thread was sent this year and indicated that the date of forgiveness was in 2023, per that creditor. That's one segment of cancelled debt. I won't ever know when the other creditors will officially "cancel" the debt and give 1099-c's thereafter. They could come at any time. Hence, more "segments" of the cancelled debt. I hope that I can continue to file 982's for each year in which I receive a 1099-c's for each of those "segments" of cancelled debt. I hope I don't/didn't have to file it at the time the banckrupty was discharged.

We'll see.

Thanks much! I have some things to discuss with my lawyers.

[justbroke]

You file the 982 for the tax year in which it was received. You don't wait. Otherwise the IRS systems "may" calculate that you have a balance due. Don't worry bout "segments" or "pieces" of the bankruptcy debt. Just completed an IRS Form 982 for each tax year in which you receive a 1099-C for that tax year.

You can file a 982 for any year that you received a cancelling of debt that was "discharged" under Title 11. It's that simple although I recommend having a tax preparer or enrolled agent do this for you.

I received only 2 Form 1099-A/C after bankruptcy... and they were for 2 properties that I owned. I received absolutely zero (0) Form 1099-A/C's for any other debt. Even if I did get one that had 2023 on it, I would still file Form 982 and say rightly claim that the debt that was "forgiven" was discharged under Chapter 11 of the United States Code.

[BxRcvor]

As a follow up on this thread:

I filed my taxes yesterday using H & R Block on-line. And, sure enough, there was a section on handling the exemptions for Title 11 discharged debt that resulted in a Form 982 being generated by the software. What is interesting though (and, maybe, a bit concerning) is that the software did not require me to enter (electronically) the 1099-C like they do other 1099s. There's no mention of the 1099-c in the final printed document, even though the 982 is right there in broad daylight. And when I filed electronically, the IRS accepted the return within 1 hr. If a 1099 is missing but expected, I think they'd have rejected the return. I would have thought the IRS would want the "creditor" information that appears on the 1099-C to be acknowledged (I know the creditor sends it to them anyway), but maybe they don't... not if a 982 is filed to exempt it.

We'll see what happens. I hope it doesn't trigger an audit. But we'll see.

[justbroke]

We shall see! Mine was so long ago, I don't remember what happened.