How to figure out if a debt written off is taxable by the IRS

Are you in the same situation as a lot of others in America - drowning in debt and trying to figure the way out? Did you know that sometimes the IRS can consider a debt write off as income? Go through these simple steps to figure out if you have to report it on your tax return or not. Any debt that is written off by the lender will generate a Form 1099-C (Cancelled Debt) at the end of the year if it is more than $600.00. The steps are quite easy and you don't have to have exact figures right now, just estimate as closely as possible. This will help you to decide what is the right thing for you to do to help you find the right debt relief solution.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• The only thing you will need is a pen or pencil and a couple of sheets of paper. Most everything else is pretty much a given factor from your own financial picture.

1. On the first sheet of paper make a list of the following:
   1)Assets as of __________________(this is the date you choose, usually the end of the year)
   2)Home Value:
   3)Car(s) Value:
   4)Bank Account(s) Balance:
   5)Personal Property:
   6)Other:
   7)Other:
   8)Other:
   9)Total Assets:_________________(Total the amounts on items 2 through 8)

2. On the second sheet of paper make a list of the following:
   1)Liabilities as of _____________________(this is the same date as in step 1)
   2)Mortgage Balance:
   3)Car Loan(s) Balance:
   4)Personal Loan(s) Balance:
   5)Credit Card(s) Balance:
   6)Other:
   7)Other:
   8)Other:
   9)Total Liabilities:_____________________(Total the amounts on items 2 through 8, as you did in step 1)

3. Subtract your Total Assets from your Total Liabilities.
   Step 2 minus(-) Step 1 = $(+/-)
   This figure will give you the amount of insolvency for your tax return purposes. All of this is for your own purposes and is in no way legal advice.

Tips & Warnings

• Tip: In order to be insolvent, your total liabilities must be greater than your total assets. Example 1: Step 1 gives you total assets of 100,000 and step 2 gives you liabilities of 90,000. This situation means you would not be able to claim insolvency. Example 2: Step 1 gives you total assets of 100,000 and step 2 gives you total liabilities of 110,000. This situation means you would be able to claim insolvency of 10,000.
• Tip 2: A "charged off" debt removes the debt from a lender's books, but does not forgive (or discharge) a debt, and it cannot create a taxable event. A "discharged debt" forgives the debt (reduces the debt amount or cancels it out to zero) and can create a taxable event.
• Warning: Please consult your tax professional or attorney for all legal advice and specific laws in the state you live in. This is not for use as legal advice. This is for use with personal calculations only.