would I be taxed on debts I settled for less than what I owe?

will the debt company or collection agency send me a tax form? If I do not get a tax form, does that mean I owe no tax?

Update:

what if none of the debts are $600 individually but I have several when added together total or exceed $600.

Update 2:

what is the tax rate of cancelled debt?

7 Answers

Relevance
  • 3 years ago
    Favorite Answer

    Possibly. Cancellation of Debt is treated as income in the year that the debt is forgiven. Settlement for less than the full amount owed potentially triggers COD income.

    If the canceled debt is $600 or more you will receive a Form 1099-C from the holder of the debt.The timing of the 1099-C depends upon the state law of your state and the creditor's state. In some cases it can be several years before the 1099-C is cut.

    See IRS Pub 4681 https://www.irs.gov/pub/irs-pdf/p4681.pdf for instructions in determining the taxable amount of the canceled debt. This can get a bit complex and you may wish to consult with a tax pro if the amount is significant.

    • Login to reply the answers
  • tro
    Lv 7
    3 years ago

    if you get a 1099C, cancellation of debt yes it is income to you

    • Login to reply the answers
  • Bob
    Lv 7
    3 years ago

    Yes

    • Login to reply the answers
  • 3 years ago

    The government wants to tax us for anything, and everything, including for the fact that we exist, in itself, so, yes.

    They consider everything income, and all income is taxable.

    • Login to reply the answers
  • How do you think about the answers? You can sign in to vote the answer.
  • Judy
    Lv 7
    3 years ago

    Yes, cancelled debt is taxable income

    • Login to reply the answers
  • WRG
    Lv 7
    3 years ago

    Yes you owe tax on that.

    • Login to reply the answers
  • 3 years ago

    Yes. In theory, you are taxed on the reduction in principal in such a deal. interest and/or penalties and/or fees that they do not collect do not create taxable income.

    as to how many of these outfits actually file the forms -- sry, have seen no statistics.

    Source(s): retired cpa
    • Login to reply the answers
Still have questions? Get your answers by asking now.