Timeshare cancellation of debt

[sandeja1]

I cancelled a Disney time share and received a 1099-c "Cancellation of Debt" for 2019.  The amount of debt "discharged" is approximately $15k.  I did not receive any money/income from Disney as a part of the discharge.  Do I have to pay income tax on the $15k that Disney has "cancelled" even though I did not receive any of it?

It was not a "residence" that I know of.  Only a timeshare.

The cancellation was done by a third-party company of my behalf.

[MaryK4]

Yes, the Cancellation of Debt is income because you received a benefit (the timeshare) that you did not pay for.  It is taxable income unless you qualify for an exclusion.

[doctorj44]

I'm in this same situation. We worked for all of 2019 to get out of a timeshare with Diamond Resorts based on the false promises, misleading information and pressure in the their sales presentations (which are required attendance). The notified us on 12/31/2019 that our timeshare was being cancelled for nonpayment. We still owed $28,000+ on the 3rd "update" we had signed up for. We then received a 1099-C for Cancelled Debt. I talked with the company with whom we had been working, who cannot give any legal advice but IRS Form 982 is our best friend. I talked to a trust lawyer friend, assuming she might have had to deal with this issue in her trust work, but she had not and new no one to whom she could refer me. I talked to a tax preparer who had also never confronted this issue but agreed she couldn't see how this could be income. She also checked with some others who also "mentioned"  Form 982. I have read the previous answer to this same question but I don't see how I have gotten anything for what has been cancelled. We have paid with our previous payments the previous uses of the timeshare. With the cancellation of this debt we cannot continue using the privileges of the timeshare so we have not received anything for that money. I was also told by the company with whom we were working that DRI doesn't usually issue a 1099-C but it has happened on other occasions. It just does not seem to me that we have received anything at all from the amount cancelled. It would have covered continued use of the timeshare going forward. We have already paid thousands of dollar of both principal in the years we have owned the timeshare for the privilege of using it during that period. The cancellation notice from DRI even says that with the cancellation we no longer have access to any of the benefits of the timeshare. Those (future) benefits are what this would have paid for and we will not receive anything for that. Thank you.

[DianeC958]

Unfortunately this is income that you need to include on your tax return.  If you qualify for one of the exceptions then it is not taxable to you.

Topic No 431 Canceled Debt-It is Taxable or Not?

[doctorj44]

Is this also subject to FICA's 15.3% as a self-employed person?

[rgserna1]

We are in the same situation and received a cancellation of debt from Diamond resorts.  So did you fill out the form 982?  did that apply or did you have to report the income? 

[sandeja1]

I wound up going to a tax professional and having them done that way.  When they prepared my taxes for me it was not counted as "income" and so I did not have to pay taxes on it.

I haven't used TurboTax since and have paid to have someone do my taxes for me.  Even when I owe, I owe less than what TurboTax online says I would owe.  Cost me more to have them done but I save in the end by not paying the IRS more.  Just my experience.

[TAS2021]

I've received a 1099-C from Marriott Vacation Club as well, and this is cancellation of a future useless point system not even any tangible property can be shown for this false promise of a timeshare. And Marriott declassified the resorts and opened to public so no membership is even required to stay at those prior resorts now. Please someone advise on the forms to remove this from income.

[sandeja1]

As you may have seen in my last post about this, I resorted to going to a tax professional/CPA to get my situation resolved.  I tried doing it through TurboTax at the time but was unable to do so.

Your situation may be different and I can not advise you on how to resolve the issue other than to suggest, possibly, going to a tax professional for their assistance.

Either way, I wish you all the luck in resolving this matter in the best way possible for you!

Respectffully,

James S.

[Vanessa A]

Basically, this comes down to the type of debt you incurred with the time share.  If it is a non-recourse loan then the debt cancellation is not a taxable event and you simply would not include the 1099-C on your return.  A non-recourse loan is secured by the property, the lender cannot come after you personally for the debt, all they can do is repossess the property. Be sure to keep proof that the debt was a non-recourse debt along with your 1099-C.  

A recourse debt, can still be secured by the property, but the lender can then also come after you and sell your other assets to collect the remaining balance of the debt.  If this was a recourse loan, then you would need to report the 1099-C on your return.  

If the debt was discharged through bankruptcy or if you are insolvent, then you can exclude the 1099-C by filing form 982.

You would need the download version of TurboTax to fill out form 982.  You will find it in forms mode by clicking Open Form then searching for form 982.  It is not available in TurboTax Online. 

[TAS2021]

This is very helpful! Thank you for the guidance. This is a blessing as mine is non-recourse and I do have proof documented for this information

[manitou]

I only received a 1099-A.  I never received a 1099-C.  What do I do with that?  Do I have to wait on the 1099-C before I do my taxes?

[AmyC]

No, you can file with the 1099-A. Go ahead and enter it in the program. If you are interested in the differences, see Instructions for Forms 1099-A and 1099-C - it is related to the amount of debt.

You would enter the 1099 A form in Wages and Income as follows:

• Select Federal Taxes
• Select Wages and Income
• Scroll down to Less Common Income and select Start or Review
• Select Start next to Miscellaneous Income 1099A, 1099C and enter the information provided on your form

@manitou.

[AMShep]

How do I find where this was recourse or non recourse debt?  The box is checked for "personally liable" - does that automatically mean recourse debt?  Or do i need to try to find the original paperwork from the timeshare (Diamond Resorts).   

[PattiF]

This is recourse debt since the box is checked that you are personally responsible for the debt. You may want to double-check with the original paperwork.  But as the box is checked for personal liability on the 1099-C, then this is recourse income and needs to be entered on your tax return.

@AMShep