The IRS considers any debt forgiven as taxable. When a credit card company forgives a debt, they report that to the IRS and send form 1099-C to you. You are then required to report that money as taxable income. However, IRS form 982 does apply in your favor in certain situations that are similar. Many people don’t know about IRS form 982 credit card debt and the rules associated with it. Read the items below to learn more about this form and how it can save you money.
What are Your Rights when Dealing with Credit Card Debt?
So what really qualifies you for IRS form 982 credit card debt savings? IRS form 982 credit card debt, Chapter 11 bankruptcy or declared insolvency of the taxpayer is considered qualifying events for IRS form 982 savings. If your liabilities exceeded your assets when your debt was forgiven, then according to the IRS, you were insolvent.
Insolvency is one of the exceptions for avoiding paying taxes on forgiven credit card debt. Yet, many low-income families that meet the insolvency criteria don’t take advantage of the IRS form 982 exemption. For example, if you and your family owe an exorbitant amount of money to your credit card company and you don’t have a house or a car that would offset your liabilities, then you probably qualify for IRS form 982 exemption.
Most people are not in the best state of mind when they’re in a massive amount of debt. It can make you anxious and stressed. However, you need to keep a calm head and learn about the various methods you can use to your advantage. The IRS form 982 exclusion is a very powerful way you can save money after declaring bankruptcy; the last thing you need is to add to your problems at this point.
As soon as you get a 1099-C form, you should know right away that the amount mentioned on this form is equal to the amount forgiven by the credit card company and shouldn’t be taxed.
Learning tricks and tips like this will make your life much easier after bankruptcy. Consider speaking with a debt counselor about your specific information. They have the knowledge and expertise to get your life back on track.