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 spouse'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 2016. 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
