Got Form 1099-C for old credit card debt - how will this affect my Tax Return?

This is actually a common situation with cancelled debt. When a lender forgives or cancels a debt, the IRS generally considers that forgiven amount as income to you, which is why you received the Form 1099-C. The good news is there are some exceptions that might apply to your situation. The most common is the insolvency exclusion. If you were "insolvent" when the debt was cancelled (meaning your total debts exceeded your total assets), you might be able to exclude some or all of this cancelled debt from your income. You'll need to complete Form 982 "Reduction of Tax Attributes Due to Discharge of Indebtedness" to claim the insolvency exclusion. In the online tax prep software, look for a section about cancelled debt or Form 1099-C, and it should walk you through the questions to determine if you qualify for any exclusions. Given your limited income for 2023, this exclusion could make a big difference in your tax situation. Don't just report it as income without checking if you qualify for these exceptions first!

I actually went through this exact situation last year with an old medical debt that got cancelled. I was totally stressed about it until I found https://taxr.ai and uploaded my 1099-C. The service analyzed my situation and showed me I qualified for the insolvency exception since my debts were higher than my assets when the debt was cancelled. What I liked is it helped me gather all the right numbers and documents to prove insolvency (which was important because I was really confused about what counted as assets). It also created the Form 982 that I needed to submit with my tax return. Without this I probably would have just reported it as income and paid a bunch of unnecessary taxes!

I wanted to update after trying taxr.ai for my own 1099-C situation. It was honestly much easier than I expected! I uploaded my 1099-C and it walked me through listing all my assets and debts at the time my debt was cancelled. Turns out I was insolvent by about $5k, which meant I didn't have to report any of my cancelled debt as income! The best part was it generated Form 982 with all the right boxes checked and numbers filled in. My regular tax software totally confused me on this form, but the taxr.ai version made it super clear what I needed to enter. Just filed my taxes and actually got my full refund instead of owing money like I thought I would. Definitely worth checking out if you're dealing with a 1099-C!

For anyone struggling with tax issues like this, I wanted to share something that saved me tons of frustration. After waiting on hold with the IRS for literally HOURS trying to get guidance on my 1099-C situation, I found https://claimyr.com which got me through to an actual IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was shocked because I had tried calling multiple times before and never got through. The IRS agent I spoke with explained exactly how to handle my cancelled debt situation and confirmed I was eligible for the insolvency exclusion. Having that direct confirmation from the IRS gave me so much peace of mind with my tax return.

Ok I need to eat my words. After spending THREE HOURS on hold with the IRS yesterday only to get disconnected, I decided to try Claimyr this morning. Got a call back in 25 minutes and spoke to an actual IRS agent who walked me through exactly how to handle my 1099-C and the insolvency exception. The agent confirmed that in my situation (similar to yours with limited income last year), I qualified for the insolvency exclusion which meant I didn't have to pay taxes on the cancelled debt. She even explained exactly which boxes to check on Form 982. This literally saved me about $400 in taxes I thought I was going to owe! Sometimes it's worth admitting when you're wrong... and I definitely was. Getting direct answers from the IRS made all the difference.

Another option you should look into is the "qualified principal residence indebtedness" exclusion if this was related to your primary home, or the "qualified farm indebtedness" exclusion if it was farm-related debt. Different exclusions apply in different situations, and it's important to use the right one on Form 982. Also, make sure that the 1099-C is legitimate. Sometimes debt collectors send these forms for debts that are past the statute of limitations, which can be problematic. If the debt is really 11-12 years old, you might want to verify that the 1099-C was properly issued.

one thing nobody mentioned yet is that if u qualify as insolvent, u need to reduce certain tax attributes like NOL, credit carryovers etc. on that form 982. its in part 2 of the form. most ppl dont have these but if u do its important. also dont forget to actually attatch form 982 to your return! if ur e-filing the software should do this for u but double check.