Does Credit Card Debt Have to Be Included as Canceled Debt?
Generally, if credit card debt is canceled, other than as a gift or through bankruptcy, you must include the canceled amount in your income. The Internal Revenue Service provides for certain exclusions, but you must still report the canceled debt amount on your federal income tax return.
Other People Are Reading
-
Identification
-
The only time credit card debt is included in your income is if it is canceled or forgiven because the credit card issuer has not received payment for at least six months. Paying a monthly balance on or paying off a credit card account is not the same as having a credit card issuer write off the debt at a significant loss. When credit card debt is canceled, it is reduced to a zero balance on the credit card issuer's books and considered bad debt.
Taxable Canceled Debt
-
You must report any taxable canceled debt as ordinary income on Form 1040 or Form 1040NR, line 21, if the debt is a nonbusiness debt; Schedule C (Form 1040), line 6, or Schedule C-EZ (Form 1040), line 1, if the debt is related to a nonfarm sole proprietorship; Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property; Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or Schedule F (Form 1040), line 10, if the debt is farm debt and you are a farmer.
-
Form 1099-C, Cancellation of Debt
-
If the credit card issuer forgives a debt you owe of $600 or more, it must send Form 1099-C, Cancellation of Debt, after the start of the next calendar year. Report the amount of the canceled debt in box 2 and the amount of the canceled interest in box 3. Even if the credit card issuer doesn't send a Form 1099-C, you have to report canceled debt on your tax return as gross income, unless you qualify for one of the IRS' exceptions or exclusions.
Exclusions
-
Canceled debt that is a gift is not included in your income. Other exclusions may also apply. For example, debt canceled in a title 11 bankruptcy case is not included in your income, including all chapters in title 11 such as chapters 7, 11, and 13. To show that your debt was canceled in a bankruptcy case and is excluded from income, prepare Form 982 and attach it to your federal income tax return.
-
