Is Debt Forgiveness Taxable?

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Is Debt Forgiveness Taxable?

Destiny Rep Points:

Posted on September 8, 2009 at 12:16 am

First, what does debt forgiveness mean? It's when a consumer enrolls in a debt settlement program having, for example, a debt of $10,000 - but coming out having only paid $5,000. One half of the debt has been forgiven by the creditors but is that debt forgiveness taxable? Do you think it's fair?Share your thoughts!

x and y Rep Points:

Posted on September 8, 2009 at 12:25 am

Yes, debt forgiveness is taxable. It's weird how the IRS found a way to profit from a consumer who's trying to get out of debt.

feel like xmas in hollywood Rep Points:

Posted on September 8, 2009 at 12:32 am

The IRS considers debt forgiveness as taxable because a debt that is forgiven is considered as income.

customer no. 5 Rep Points:

Posted on September 8, 2009 at 1:11 am

Yes debt forgiveness is taxable but is there a way for the consumer to be exempted from it?

think about cosmos Rep Points:

Posted on September 8, 2009 at 1:57 am

So debt forgiveness is taxable but how much is it (in percentage) that the IRS take away from the settlement amount? It's seems as if the higher the debt, the higher the tax. Just like the higher the salary, the higher the tax. How do they determine the brackets, does anybody know?

The Question Rep Points:

Posted on September 8, 2009 at 2:09 am

If debt forgiveness is taxable, does it still make sense to do debt settlement?

99 hundred 99 tears to go Rep Points:

Posted on September 8, 2009 at 2:20 am

Even if debt forgiveness is taxable - it still makes sense to do debt settlement. I am not expert but I read somewhere that if for example, you owe $10,000, the creditors settled for $5,000, the IRS would get $1,000.That means that you still saved $4,000.I am not too sure. Perhaps somebody can verify that.

Stan Rep Points:

Posted on September 8, 2009 at 2:32 am

To answer customer no. 5's question: "Yes debt forgiveness is taxable but is there a way for the consumer to be exempted from it?"The answer is yes, if:There's a billing error and you disputed it. For example the creditor says that you owe $1,500 on a purchase, say a designer bag, but you can't recall charging on that item. Nobody wants to budge-and it's dragged on for a time, until finally you agree to pay $350. The remaining $1,150 becomes the settlement of contested liability, which is considered non-taxable.

a lonely lonely day Rep Points:

Posted on September 8, 2009 at 2:38 am

I think it's also true if the consumer is in a Chapter 13 bankruptcy- the IRS doesn't tax the discharge of indebtedness income.

Isabel Rep Points:

Posted on September 8, 2009 at 2:54 am

The consumer that's insolvent may also not be taxed. If the consumer's liabilities exceed his/her assets then forgiven debt in this case is not taxable.