Debt discharge income is reported on the IRS form 1099-C of an individual or business from a taxpayer's personal residence, rental properties , business debts or personal debts (e.g., credit card debts).
What is the tax remedy?
The IRS regulations allows you to exclude all or a portion of the debt canceled (i.e., income reported on 1099-C), if the taxpayer is either insolvent or is Bankrupt.
Do you need to do any calculations?
Yes, you not only need to file a form with the IRS but you need to run the numbers and consider what constitute your Insolvency by consiidering all your Assets and Liabilities at their Fair Market Value and oustanding liabilities. For some taxpayers this calculations can involve lots of calculations and considerations. So there is tax relief if you have to consider thousands of dollars as Income and you are not getting actual money.
Get some help from a tax professional it is well worth it.
Source: IRS.gov
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