We were discharged from chapt 7 personal and business bankruptcy in 2009. 1099-Cs are still coming in for our 2010 taxes.

Asked over 3 years ago - Iowa City, IA

Do we refer to the 2009 bankruptcy and file with the debt forgiveness form with our 2010 taxes, or do we go back and amend the 2009 taxes? Also, on some biz cards we had personal liability. To get the forgiveness of debt on the personal side will we need to file the insolvency test rather than claim that debt as part of the bankruptcy?

Attorney answers (3)

  1. Henry Daniel Lively

    Contributor Level 20

    1

    Lawyer agrees

    Answered . The entity or person that declares bankruptcy and includes the debt in their petition is allowed to exclude the forgiveness of debt income from their tax return. You do not need to amend your return. Declare the forgiveness of debt exclusion in the year you received the 1099 from the lender. This is the year the IRS will be matching up to. If you also declared personal bankruptcy you still can use the bankruptcy exclusion. If you did not declare personal bankruptcy you will need to use the insolvency exception for the personal side.

    Any individual seeking legal advice for their own situation should retain their own legal counsel as this response... more
  2. Robert Jan Suhajda

    Contributor Level 17

    1

    Lawyer agrees

    Answered . As long as the debt was discharged in bankruptcy you can use the bankruptcy exception on IRS form 982 for 2010. If the biz cards liability was discharged in bankruptcy then use that exception. I am not exactly sure of the facts as described. Did you receive a 1099 for the biz cards also?

    Disclaimer of California Attorney. Laws differ from state to state. Although the above response is believed to be... more
  3. Theodore Lyons Araujo

    Pro

    Contributor Level 20

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    Lawyer agrees

    Answered . When your debt is reduced or eliminated, even if the debt was “forgiven” or excused involuntarily, as through a foreclosure, you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
    Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
    The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude up to $2 million of debt forgiven on your principal residence, as long as it was during tax years 2007-2012. If you are married but filing a separate return the limit is $1 million.
    If you incurred debt from mortgage restructuring or foreclosure, you may be able to exclude that too. In order to qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
    Using the proceeds of the loan to pay off credit card debt, or buy a new car, may not qualify for the exclusion. IF THE DEBT WAS DISCHARGED IN A BANKRUPTCY THERE IS NO TAX.
    In order to claim the exclusion you need to fill out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
    Debt forgiven on second homes, rental property, business property, credit cards or car loans does NOT qualify for the tax relief provision. However, in some cases, other tax relief provisions such as insolvency or bankruptcy may allow you to exclude the debt forgiven from income. IRS Form 982 provides more details about these provisions.
    For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676)
    REQUEST: Please give this answer a "thumbs up"(below) if you find it valuable.

    Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and... more

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