Hey
Do you know? Even if your lender forgives your debt, the IRS still wants to know that because you may be liable to pay taxes on the forgiven
debt.
Failure to furnish the IRS with the details of the forgiven debt may result in a penalty.
How will they know? You may ask. Well, lenders file information returns each year, and one of those will be about your forgiven debt. That’s how the IRS knows.
Therefore, as soon as one of your debts
is forgiven, celebrate for a moment but remember to do the following:
- When filing your federal tax return, use Form 1040, U.S. Individual Income Tax Return, Form 1040-SR, U.S. Tax Return for Seniors, or Form 1040-NR, U.S. Nonresident Alien Income Tax Return to report any taxable amount of
canceled debt as ordinary income from the cancellation of debt on
- Report it as "other income" if the debt is a nonbusiness debt, or on an applicable schedule if the debt is a business debt.
I sent an email in the last weeks detailing how some states may tax forgiven student loans, well, the above information should also apply to these forgiven loans.
If any tax issues are troubling you, click this LINK and go to “Want Me To File Your Taxes?” to book an appointment with me.
