My husband received a 1099 c for a property him and his ex wife defaulted on 15 years ago. Do we do the solvency worksheet with our stuff together or seperate?

[DanielV01 · Accepted solution]

It depends.  It is unfortunate that the mortgage forgiveness provision was allowed to expire.  So, in order to reduce the amount of reportable income from the cancellation of debt on the house, it will be necessary to calculate insolvency.  But that does not require you to file separate returns, but you can calculate your insolvency separately.  Those calculations are on a separate worksheet which you basically fill out manually.

Here is the most recent worksheet currently available on the IRS website (last year's version).  You'll want to wait for this year's form, but this will give you a good idea:  https://taxmap.irs.gov/taxmap/pubs/p4681-002.htm#en_us_publink100052679

The IRS may ask for this form.  You would need to mail it in if they do.

[kfrank1]

Thank you!

[DanielV01]

You're welcome.  The challenge with insolvency is to determine the amount of assets and liabilities in your husband's name at the moment the debt was cancelled.  That usually takes some digging to find out your bank account, belongings, debts, etc.  But he doesn't calculate anything that's yours, just his.  (He would take his portion of joint property).  It takes some time but certainly worth the trouble to get that tax burden off of your income.