Do You Owe Tax on Relief of Credit Card Debt???

COD Income, that's what this is called. It means Cancellation of Debt income. If you have a lender discharge part or all of a debt that you were liable for, you may owe income tax on the amount that was discharged. This is because certain debts that are cancelled or forgiven by a lender result in taxable income to you, even though you have not technically received any money in hand from the debt forgiveness.

Generally, debt that is discharged or canceled by a lender must be included in your taxable income. Debt forgiveness income is the amount of debt that a lender discharges or cancels. Unless a specific exception applies, a lender's cancellation of debt will generally result in income to the borrower. If you have had a lender discharge all or part of a debt that you owe, and you would like to know what your tax obligations are regarding the cancelled amount, please contact our office.

In general, if the amount of forgiven or canceled debt is $600 or more, the lender must issue to you and to the IRS a Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. Even though the creditor has issued Form 1099-C, you may be able to claim an exclusion from the income for the canceled debt.

If you had debt discharged in 2009 that does, or does not, qualify for an exception you must include the amount of cancelled debt in your gross income on your tax return. If you have questions about COD income, the exclusions from income, or your reporting responsibilities, please contact our office.

Thanks for checking in today. Hope to hear from you soon,

Dale





Reproduced with permission from CCH's Client Letter, published and copyrighted by CCH Incorporated, 2700 Lake Cook Road, Riverwoods, IL 60015.