Insolvency: What it is and how it's calculated
Vložit
- čas přidán 8. 09. 2024
- If you have income resulting from Cancellation of Debt, you can exclude some of that income from taxation to the extent your liabilities exceeded your assets just before the debt was cancelled.
This video defines insolvency and goes over the method used to calculate it. It also shows how to report the exclusion of cancellation of debt income from taxation on your tax return
2023 UPDATE:
Cancellation of Debt income is now reported on line 8c of Schedule 1.
If you need an explanation of cancellation of debt income, and why it can be taxable, click here: • Why is Cancellation of...
Resources and Additional information:
IRS Publication 4681: "Cancelled debts, Foreclosures, Repossessions, and Abondonments": www.irs.gov/pu...
IRS Form 1099C: "Cancellation of Debt": www.irs.gov/pu...
IRS Form 982: "Reduction of Tax Attributes due to Discharge of Indebtedness": www.irs.gov/pu...
credit.com: "What is a 1099-c Cancellation of Debt Form and How Does it Impact your Taxes?": www.credit.com...
Zillow.com® and Yahoo!Finance® are Registered Trademarks of their respective owners. The use of these websites in this video does not imply any sponsorship or endorsement, and also does not imply that there are not other means of obtaining the information in question.
The Tax Geek on Twitter: @taxgeekusa
The Tax Geek on Reddit: www.reddit.com/r/askataxgeek
Image credit: Wikimedia Commons
Greg Schechter (S.A. 2.0)
Jean7031 (S.A. 3.0)
Willie Offin (S.A. 2.0)
Intro Music: "Bluesy Vibes" - Doug Maxwell - CZcams Audio Library
Background and Outro Music: George Street Shuffle, Kevin McLeod, incompetech.com via CZcams Audio Library
DISCLAIMER: This video is for educational and informational purposes only. It is not intended to render tax advice or investment advice for individual situations. If you have questions regarding your particular situation, please consult with a qualified tax or investment professional.
The tax information in this video is based on tax law and IRS regulations in place when this video was published, and is subject to the whims of Congress.
2023 UPDATE:
Cancellation of Debt income is now reported on line 8c of Schedule 1.
WELL SAID yes it your right!!
Well described, very helpful.
Thank you, I'm glad you found it helpful.
very informative and helpful!
I'm glad you found it helpful!
7:24 Hi! This video was so helpful. Great explanation!
My husband received a 1099-C (2022) for a mortgage charge off for a deficiency balance from sheriff sale (2017)
At the time, ex wife was living in the home and didn’t pay the mortgage. Home wasn’t in her name …. She wasn’t concerned with ruining his credit.
We are attempting to claim insolvency for the 19k charge off. We are filing jointly. New home and cars are in my name. We share bank accounts. He has student loan debt 17k. Would we split the balance of bank accounts to list as assets or are we required to list all assets in my name as well?
Thank you!
Excellent video
Thank you!
Can you please define what bank accounts mean? Are certain assets exempt from the insolvency worksheet?
Bank accounts are any checking or savings accounts you might have with a bank. You must include all your assets when calculating if you are insolvent or not. On the other hand, if you declare bankruptcy, you are allowed to exempt some assets from the bankruptcy.
@@TheTaxGeek What about balances on prepaid cards, such as child support?
It is included as an asset.
thank you for your information. seeing it broke down and explained is very helpful. However I do have one question. What happens if you have a judgement against you?
Judgements against you that you haven't paid are liabilities just like any other debts. They are listed on line 11 of the Insolvency Worksheet.
What if I can't find the 1099-C can I call the creditor and get that mailed or faxed to me?
Yes you can.
So if your liability exceeded 60k and you place the 60k on the 982 form would you put 0 on the schedule 1 form? Also by showing a liability of 60k on the 982 form want that show the irs more taxable income and look worse for me?
If your liabilities exceed your assets by $60K, you would only put the amount of debt that was being cancelled on Form 982, and nothing would show up on Schedule 1. This would reduce your taxable income by not having to include the cancelled debt in your taxable income.
Good morning, so I’ve been watching a lot of videos because I’ve never really had to go through what I’m going through now and any input I would greatly appreciate. I’m a mother of three boys I do work full-time as a CNA 2021. I started a job in Lubbock and I got a new vehicle from a car dealership where they accept bad credit the car that I was buying from them I was using and running for two years and all of a sudden it went bad they let me do a trade-in at that same dark car dealership. I ended up getting another car with them. My insurance went up for 400 a month it was 200 I got a car ticket for speeding so that raise my insurance my car payment was 525 so I only kept the car 6 months and felt that I needed to return the car because I couldn’t afford paying 900 with the car payment and the insurance together. voluntary repossession. anyhow I file my taxes this year then later received the 1099C in the mail saying that they discharged 20,000 for the car loan and the car was valued at @8000. of course I depend on my tax return every single year especially this year because my son is a senior graduating high school in May. Is it possible that I could follow at 982 and claim and solvency or however that works I don’t even know everything correctly I do have probation fees that I have been paying on for the last six years and still owe a few thousand I’m paying on the title loan for the vehicle that I own been paying on it for two years. Nothing but interest. I haven’t even touched the loan, and at the time I did have bills or unpaid. I’m not sure if you can help me or give me insight or are they just gonna take everything. I filed with H&R Block and she tells me to wait to see what the address is. I was going to do amended return but she didn’t tell me anything about the 982 I had to find that out on my own to try and fight for my money.
Irs* not address.
I am married however the credit card debt (4 different cards were negotiated at 4 different times) was in my name only, can I file separately from my husband to I can take advantage of the insolvency as all the assets are shared by us both, so I really do not own anything solely. When I negated with the credit card company it was thru Freedom Debt Relief and the charge me 24% interest for handling the negotiations. can I claim that portion of the debt?
Yes, you can file separately. However, you have to take into account your share in jointly held assets. For example if you jointly owned an automobile with a FMV of $10K, you have to consider $5K of that value when computing insolvency. Technically, if you had debts discharged on different dates during the year, you need to prepare a separate Insolvency Worksheet for each discharged debt because you might be insolvent when the first debt was discharged, but not when the second debt was discharged.
But before you file separately, make sure you won't lose any valuable tax benefits by doing so. You might find that through the lower tax rates, higher standard deduction, and tax credits and deductions you might lose by filing separately offset the tax on the higher income when you can't claim insolvency as a married couple.
As a side note, it really makes me angry when so-called "debt resolution" companies charge outrageous fees to do something you can either do on your own or in partnership with a non-profit credit counseling service. These fees, unfortunately, cannot be used to offset the income from the discharged debts.