Is Cancelled Debt Taxable?

One common question we get from student is…

“Is Cancelled Debt Taxable?”

Generally speaking the answer is – Yes. Since the IRS treats the forgiven debt as income; that amount can be taxable. Typically you must report the canceled debt on your tax return for the year the cancellation occurs.

*This is true for any and all debt that’s been canceled, forgiven, or discharged for less than the amount you owe.

Is cancelled debt taxable? Yes – but there’s a way around this…

First of all, there’s an exception… You don’t have to report the income on your tax return IF you were insolvent before the creditor agreed to settle or write off the debt.

*Insolvency means that your debts exceed the value of your assets. To figure out whether or not you were insolvent, you’ll have to total up your assets and your debts, including the debt that was settled or written off. For example…

Your assets are worth $35,000 and your debts total $45,000, so you are insolvent to the tune of $10,000. You settle a debt with a creditor who agrees to forgive $8,500. You do not have to report any of that money as income on your tax return.

To establish your right to exclude the money shown on the 1099, one would need to include IRS form 982 with your tax return for the year the debt was removed.

If you want the ultimate tax solution…

Inside Section 4 of Bulletproof Trust Secrets we teach a little-known redemption method that allows you to remove your income tax liability LEGALLY(for ALL types of income including removed debts.) *This simple method allows one to eliminate the taxable event (it’s as easy as writing a check!).

We’d say that’s having your cake & getting to eat it too!

You can put this debt behind you once and for all (and quicker than you probably think).

Learn how Debt Removal Secrets can set you free.

Owe multiple debts? Then you gotta see our post tomorrow – we’ve got a few tips that will help know what to expect along the way.

Your friends in finance,
Private Wealth Academy