How do I file a 2016 1099C Cancellation of debt for my deceased husband? He died 2015 and already filed our final joint return. WHat do I do?

blueskies111 — Thu, 06 Jun 2019 00:01:55 GMT

Very, very sorry for your loss. The remainder of this ans...

MichaelDC — Thu, 06 Jun 2019 00:01:56 GMT

Very, very sorry for your loss.

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. T

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.

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How do I file a 2016 1099C Cancellation of debt for my deceased husband? He died 2015 and already filed our final joint return. WHat do I do?

Very, very sorry for your loss. The remainder of this ans...