Legal Question in Credit and Debt Law in Illinois
Which part is the income portion on a cancelled debt?
I settled a credit card debt for less than amount due in 2008. However, the majority of the forgiven amount is interest and penalties. For the purposes of IRS, do I consider the entire amount that was forgiven as income, or do I exclude that portion that constitutes interest and penalties? The credit card company reported the full forgiven amount on the 1099-C, with no indication of interest or fees paid.
Background:
I defaulted due to unemployment issues. Interest continued to accrue, and penalties were assessed until I made a settlement payment on 3/26/08.
Credit limit $850
Final debt $1569.55
Settle payment $707.00
Forgiven $862.55
Over the history of the account:
Ttl purchases $1096.56
Ttl payments $395 (before settlement payment)
Ttl principal owed before settlement payment $701.56
Ttl Interest $292.99
Ttl Late Fees $273.00
Ttl Overlimit fees $273.00
Ttl Check Return Fee $29.00
TTL INT/FEES = $867.99
1099-C amount = $857.72
What portion of the forgiven debt do I actually consider ''income'' in this case?
1 Answer from Attorneys
Re: Which part is the income portion on a cancelled debt?
This is a tax question more than it is a legal question. I would highly recommend you consult with a tax expert on this.
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