Legal Question in Tax Law in Pennsylvania

written off balances

If a credit card co writes off a portion off your debt and lets you settle for a percentage is the written off portion taxable as capital gains


Asked on 4/06/04, 12:11 am

1 Answer from Attorneys
Burton Haynes Burton J. Haynes, P.C.

Re: written off balances

Well, you're half right. The amount of the debt of which you are relieved is called "discharge of indebtedness income," or DOI. Absent an exception, it is taxable as ordinary income (not as a capital gain as your question suggests). The main exceptions are found in IRC sec. 108: DOI does not have to be included in income if it occurs at a time when the taxpayer is in bankruptcy or is insolvent. There is some information about this in the instructions to IRS Form 982. Additional information is in IRS Publication 908.

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Answered on 4/06/04, 8:21 am


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