Again, I'm sorry for your loss.
First, with regards to the medical expenses that you paid: According to the IRS, "If you paid medical expenses for your deceased spouse or dependent, include them as medical expenses on your Schedule A (Form 1040) in the year paid, whether they are paid before or after the decedent's death. The expenses can be included if the person was your spouse or dependent either at the time the medical services were provided or at the time you paid the expenses."
The remainder of this answer is a complicated issue about which you may wish to consult a lawyer.
To start, the amount of debt forgiven is generally taxable, however, it's possible that an exemption applies which excludes all or part of canceled debt from taxable income.
In your case, because the debt was canceled after your husband's death, the responsibility for the cancelled debt belongs to the estate and shouldn't be reported on the final return with your husband which was in 2015. This would be filed on a totally separate return from yours called Form 1041 (Tax Return for Estate and Trusts).
If that's the case, as it seems from your comment, you're not liable personally for the canceled debt of the deceased but the estate would be.
If there is an estate and the estate is insolvent, the estate would file Form 982 to exclude income realized because of canceled debt.
This is called by the IRS "Income in Respect of a Decedent." All income the decedent would have received had death not occurred that was not properly includible on the final return is income in respect of a decedent.
Income in respect of a decedent must be included in the income of one of the following.
- The decedent's estate, if the estate receives it.
- The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it.
- Any person to whom the estate properly distributes the right to receive it.
Also, if
you do not live in a community property state, and you were not jointly responsible with your husband, you are generally
not liable for the debt. Community
property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico,
Texas, Washington and Wisconsin.
From the perspective of the Internal Revenue Service, you
should consider the following issues if you're not sure whether you were liable
for canceled debts. IRS Publication 4681, Canceled
Debts, Foreclosures, Repossessions, and Abandonments, says, "The amount, if any,
you must report depends on all the facts and circumstances, including:
- State law, (including
community property laws)
- The amount of debt proceeds
each person received
- 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
qualified for any of the exceptions or exclusions described in the
publication."
Based
on these circumstances, if you determine that you were liable for the debt, you
must report the canceled debt as income for 2016.
If you're in doubt whether you should report the canceled
debt, the safe bet is to report it and then use Form 982 to
show insolvency. Insolvency is when your debts exceeded
your assets at the time the debt was canceled.
Please note that there is no clear indication of the IRS position toward such situation.
Here is some info on how to report insolvency in TurboTax:
https://ttlc.intuit.com/replies/5713860
