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dblcar13
New Member

Exclusion from 1099C

My dad who is 92 is going to try and settle his credit card debt for less than what is owed.  Given his age and his only income is social security can he be excluded from having to pay taxes if he receives a 1099-C for the difference between what he owed and what was settled for?

4 Replies
Critter
Level 15

Exclusion from 1099C

Can I exclude my 1099-C from my taxable income?

Note: The exclusion for canceled debt on a primary residence has not been extended to tax year 2018. 

 

In certain cases, yes. Although the IRS generally considers canceled, forgiven, or discharged debt as taxable income, there are exclusions and exceptions to the rule.

When you enter your 1099-C in TurboTax, we'll ask a series of questions to determine if some of all of your 1099-C debt can be excluded.

macuser_22
Level 15

Exclusion from 1099C

There is no age limit for paying tax.  The 1099C is taxable income.  It would depend on the amount of that income and filing status whether he would even be required to file tax return at all.

 

See https://www.irs.gov/pub/irs-pdf/p17.pdf

Filing requirements:  page 6

 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
rjs
Level 15
Level 15

Exclusion from 1099C

Advanced age and low income are not included in the list of exclusions and exceptions. Unless one of the listed exclusions or exceptions applies, your father's canceled credit card debt will be taxable. However, depending on the amount of Social Security income (or any other income) and the amount of canceled debt, your father might not actually owe any tax, or the tax might be very little (or he might not even have to file a tax return, as macuser_22 suggested). You could do a what-if tax return with his actual Social Security income and vary the amount of canceled debt to see how high it can go before any tax is incurred.

Hal_Al
Level 15

Exclusion from 1099C

Assuming he is not somebody else's dependent, he is allowed a standard deduction of $13,850 (over age 65).  So, essentially the first $13,850 of cancelled debt is tax free.  Anything over will be taxed at 10% (up to $9700).

 

Social security only becomes taxable when added to sufficient other income. If you are otherwise required to file a tax return, you do need to enter it in Turbotax (TT). TT will determine the taxable portion.  If the amount on the 1099-C  is high enough, some of his SS  may become taxable too.

Social security (including SSDI) becomes taxable when your income, including 1/2 your social security, reaches:

Married Filing Jointly(MFJ): $32,000

Single or head of household: $25,000

Married Filing Separately and lived with your spouse at any time during the tax year: $0

 

 

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