Do I have to claim insolvency this year in order to claim it next year for a different 1099-C? Is insolvency an option to all forms of debt cancellation?

[LinaJ2020 · Accepted solution]

No, you do not. 

You do not need to claim insolvency this year along with your 2019 taxes so to claim a Form 1099-C next year.  However, when you receive your Form 1099-C next year, you would need to show insolvency on the worksheet when you file your 2020 taxes. 

On the worksheet, you need to show you are insolvent before the cancellation of the debt date.  It requires you to enter the date of debt on the worksheet.    Therefore, it depends on when your debt is canceled and you would need to provide your financial information before that date. To see the worksheet, click here: COD.  Also, see the image below. 

If your debt canceled is not because of foreclosure of your main home, for other forms of debt including personal debt like the credit cards, by showing you are insolvent is the only way to qualify you to exclude the cancellation of debt income hence reduce your taxes.