Insolvency: What it is and how it's calculated
If you have income resulting from Cancellation of Debt, you can exclude some of that income from taxation to the extent your liabilities exceeded your assets just before the debt was cancelled.
This video defines insolvency and goes over the method used to calculate it. It also shows how to report the exclusion of cancellation of debt income from taxation on your tax return
202 UPDATE:
Cancellation of Debt income is now reported on line 8c of Schedule 1.
If you need an explanation of cancellation of debt income, and why it can be taxable, click here: • Why is Cancellation of Debt Taxable?
Resources and Additional information:
IRS Publication 4681: "Cancelled debts, Foreclosures, Repossessions, and Abondonments": https://www.irs.gov/pub/irs-pdf/p4681...
IRS Form 1099C: "Cancellation of Debt": https://www.irs.gov/pub/irs-pdf/f1099...
IRS Form 982: "Reduction of Tax Attributes due to Discharge of Indebtedness": https://www.irs.gov/pub/irs-pdf/f982.pdf
credit.com: "What is a 1099-c Cancellation of Debt Form and How Does it Impact your Taxes?": https://www.credit.com/blog/1099-c-ca...
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Image credit: Wikimedia Commons
Greg Schechter (S.A. 2.0)
Jean7031 (S.A. 3.0)
Willie Offin (S.A. 2.0)
Intro Music: "Bluesy Vibes" - Doug Maxwell - YouTube Audio Library
Background and Outro Music: George Street Shuffle, Kevin McLeod, http://incompetech.com via YouTube Audio Library
DISCLAIMER: This video is for educational and informational purposes only. It is not intended to render tax advice or investment advice for individual situations. If you have questions regarding your particular situation, please consult with a qualified tax or investment professional.
The tax information in this video is based on tax law and IRS regulations in place when this video was published, and is subject to the whims of Congress.