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?
what if none of the debts are $600 individually but I have several when added together total or exceed $600.
what is the tax rate of cancelled debt?
- Bostonian In MOLv 73 years agoFavorite 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.
- troLv 73 years ago
if you get a 1099C, cancellation of debt yes it is income to you
- BobLv 73 years ago
- thegreatoneLv 73 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.
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- JudyLv 73 years ago
Yes, cancelled debt is taxable income
- WRGLv 73 years ago
Yes you owe tax on that.
- Spock (rhp)Lv 73 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