Results 1 to 4 of 4
  1. #1
    Join Date
    Mar 2020
    Posts
    4

    Default How Does 1099-C Affect Spouse

    If I receive a 1099-C in my name only for credit card debt forgiveness, and I am personally insolvent, what effect does this have on my spouse? Would we need to file separately for the year in question?

  2. #2
    Join Date
    Sep 2010
    Posts
    19,607

    Default Re: How Does 1099-C Affect Spouse

    What state do you live in?

  3. #3
    Join Date
    Mar 2020
    Posts
    4

    Default Re: How Does 1099-C Affect Spouse

    Quote Quoting flyingron
    View Post
    What state do you live in?
    Pennsylvania

  4. #4
    Join Date
    Oct 2014
    Posts
    7,861

    Default Re: How Does 1099-C Affect Spouse

    Quote Quoting teenwolf
    View Post
    If I receive a 1099-C in my name only for credit card debt forgiveness, and I am personally insolvent, what effect does this have on my spouse? Would we need to file separately for the year in question?
    The effect it has depends on the details of your situation. While in general discharged debt is taxable income, there are several exceptions to this rule. For credit card debt, the most common exception is that the discharged debt is not income to the extent that you were insolvent (i.e. your debts exceeded your assets) at the time of the discharge. For example, suppose Amy has total debts of $103,000 and total assets (at fair market value) of $95,000 on July 15, 2019. So she starts out insolvent with a negative net worth of $8,000. On that day she settles a $30,000 debt with a credit card company for $7,000. That results in debt discharge of $23,000. After the discharge, her assets are now $88,000 (since she paid the creditor $7,000) and her debts are now $73,000. So after the discharge. So after the discharge, she has a positive net worth of $88,000 - $73,000 = $15,000. As a result, she ends up with $15,000 of income from the debt discharge, not the entire $23,000 that was discharged. The difference of $8,000 is not income because she was insolvent in by $8,000 right before the discharge. The discharge benefited her by making her solvent in the amount of $15,000, so that's taxable income to her. Had she still been insolvent after the discharge then there would have been no income from the discharge. So run the numbers for you to see how much, if any, of that discharged debt would be income to you. If the credit card debt was solely your debt then you count only your assets (including your share of joint assets) and only your debts (including your share of joint debts) to determine to what extent you were insolvent. It might be that you don't have much, if any, taxable income out of this. If you need help running those numbers, see a tax professional for help. Note that if you do make use of the insolvency rule you have an extra form to fill out to that and you may have to adjust some other tax attributes to account for the portion of the discharge that is not taxed. IRS Publication 4681 discusses all this in detail. Once you know how much is taxable income you can figure out if filing separately or jointly is better for you. It is very likely that you will still save tax filing jointly regardless, but the details of your situation will matter.

    1. Sponsored Links
       

Similar Threads

  1. Bankruptcy Issues: How Do Your Spouse's Assets Affect Your Bankruptcy
    By lawfacts in forum Bankruptcy Law
    Replies: 1
    Last Post: 03-03-2017, 10:45 AM
  2. Post-Discharge Issues: Will One Spouse's Bankruptcy Affect the Other Spouse's Credit
    By sunshine886 in forum Bankruptcy Law
    Replies: 1
    Last Post: 06-08-2015, 07:49 PM
  3. Collection and Enforcement: What Affect Does a Judgement Have on Sales Agent Paid Via 1099 Commissions
    By fatkat in forum Civil Procedure
    Replies: 3
    Last Post: 06-20-2013, 10:21 PM
  4. Bankruptcy Issues: How Will My Bankruptcy Affect My Spouse
    By lrea819 in forum Bankruptcy Law
    Replies: 1
    Last Post: 04-26-2009, 06:19 AM
  5. Background Checks: Can One Spouse's Felony Record Affect The Other Spouse With Employment Or Credit?
    By ndhelppls in forum Employment and Labor
    Replies: 3
    Last Post: 06-07-2008, 09:38 PM
 
 
Sponsored Links

Legal Help, Information and Resources