There seems to be confusion on the taxability of credit card interest reported on a 1099-C.
Most clients ask me the following, “A taxpayer received a 1099-C reporting cancelled debt from credit cards they used for personal purchases. The person is neither bankrupt nor insolvent. The 1099-C indicated that a portion of the cancelled debt included interest. Is the interest portion also included in the taxpayer’s income?
The answer is yes. Since the interest on the debt would not have been deductible had the taxpayer paid the credit cards, the interest is included in income as part of the cancelled debt income.
All taxpayers who may face the situation of 1099-C cancelled debt on credit cards should remember that you can negotiate with the credit card company for your settlement. During the settlement process you can inquire as to whether the “write-off” amount is going to be reported. You have the option of not accepting a payoff agreement when reporting is inevitable.
1099-C Cancelled Debt is reported on Line 21 of your 1040 and the amount reported is added directly to income. There are no deductions that will reduce this amount.
Most clients ask me the following, “A taxpayer received a 1099-C reporting cancelled debt from credit cards they used for personal purchases. The person is neither bankrupt nor insolvent. The 1099-C indicated that a portion of the cancelled debt included interest. Is the interest portion also included in the taxpayer’s income?
The answer is yes. Since the interest on the debt would not have been deductible had the taxpayer paid the credit cards, the interest is included in income as part of the cancelled debt income.
All taxpayers who may face the situation of 1099-C cancelled debt on credit cards should remember that you can negotiate with the credit card company for your settlement. During the settlement process you can inquire as to whether the “write-off” amount is going to be reported. You have the option of not accepting a payoff agreement when reporting is inevitable.
1099-C Cancelled Debt is reported on Line 21 of your 1040 and the amount reported is added directly to income. There are no deductions that will reduce this amount.
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1 comment:
Great article. Thanks for the info, it’s easy to understand. BTW, if anyone needs to fill out a form 1099-C, I found a blank form here http://goo.gl/U5p3Fp. This site also has some tutorials on how to fill it out and a few related fillable tax forms.
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