Per Publication 4681 - Canceled Debts, Foreclosures, Repossessions, and Abandonments, if you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. However, you may not have to report that entire amount as income.
The amount, if any, you must report depends on all the facts and circumstances, including:
- State law;
- The amount of debt proceeds each person received;
- How much of any interest deduction from the debt was claimed by each person;
- How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner; and
- Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication.
The debt was for a car loan. The individual that had possession of the car would be the individual that would claim the full amount of the debt cancellation.
The other individual, that received the Form 1099-C, will need to mail in their return and attach a statement stating the they are not responsible for any part the joint debt on the Form 1099-C. They should list the name and social security number of the other individual and state that that person is including the entire amount of the debt on their return.
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