Is Forgiven Debt Taxable?

By Mary Ann Pekara
It's tax time and you're getting ready to file your taxes. Have you had any debt forgiven this year? How much debt? Have you thought about how that affects your taxes?
Many people do not realize that forgiven debt is sometimes taxable income. Now, there are exceptions to every rule but it is important to look into if you had debt forgiven last year and what that could mean.
Certain types of forgiven debt are exempt from Federal taxes. Those include but may not be limited to:

• Debts discharged in bankruptcy
• Debts canceled when you are insolvent
• Mortgage debt forgiven in foreclosure
• Some student loan debt

Other forgiven debt, specifically if you saved over $600, may be considered taxable income according to the IRS. This must be claimed on your tax return, otherwise the IRS has grounds to come after you.
Credit and debt collectors are required to file 1099-C forms with the IRS for forgiven debts of $600 or more. Some collectors will send a copy of the form to their customer but it is not required that they do so.
The 1099-C is a very complicated form and it is important to double-check the form before submission to verify that all the information is correct.
The IRS is expected to get $6.5 million in debt forgiveness this year based on the 1099-C form.
If you're unsure of anything, contact a local professional as soon as possible.