If I had to file bankruptcy will the amount that was discharged be a taxable item on my next years federal income taxes?
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If I had to file bankruptcy will the amount that was discharged be a taxable item on my next years federal income taxes?
Amount dicharged was 90k
Asked on March 17, 2011 under Bankruptcy Law, Nevada
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
You appear to be in luck. Ordinarily, debt foregiveness is taxable--for example, if you have $30k of credit card debt and your card issuer agrees to accept $15k and foregive the other $15k, then you're treated as having received $15k of income, on which you have to pay taxes.
However, the Internal Revenue Code (IRC) specifically exempts debts discharged in bankruptcy from being considered taxablel income. See IRC Section 108; I've pasted in a link below for your convenience.
I believe that you need to annotate or claim the discharge in the proper way to make sure it is not considered taxable income. You should either speak with your tax professional or preparer, or contact the IRS directly, in order to see what sort of form you need to file and any documentation that would be helpful.
Here's a link to the IRC section, and good luck: http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000108----000-.html
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