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1099-C w/ interest

Tina Gaddini
Level 1

Client received 1099-C for home foreclosed in 2011. Amount of debt discharged includes $103,000 of INTEREST! Is my client taxed on the interest portion!?! Also, is there a statute of limitations for bank to issue 1099-C? 

It was his main home. He does not have an agreement in writing dated before 2018. In 2011 he was insolvent, but not in 2018. Would hate to tell client he has large tax liability because of accrued interest he thought was already dismissed.

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IntuitCharlene
Community Manager
Community Manager

 Looking at Publication 4681 https://www.irs.gov/pub/irs-pdf/p4681.pdf page 4: 

Interest included in canceled debt. If any interest is included in the amount of canceled
debt in box 2, it will be shown in box 3. Whether the interest portion of the canceled debt must
be included in your income depends on whether the interest would be deductible if you
paid it. See Deductible Debt under Exceptions, later.

Looking at Deductible Debt on page 5:  If you use the cash method of accounting, you don't realize income from the cancellation of debt if the payment of the debt would have been a deductible expense.

 

I hope this helps!

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IntuitCharlene
Community Manager
Community Manager

 Looking at Publication 4681 https://www.irs.gov/pub/irs-pdf/p4681.pdf page 4: 

Interest included in canceled debt. If any interest is included in the amount of canceled
debt in box 2, it will be shown in box 3. Whether the interest portion of the canceled debt must
be included in your income depends on whether the interest would be deductible if you
paid it. See Deductible Debt under Exceptions, later.

Looking at Deductible Debt on page 5:  If you use the cash method of accounting, you don't realize income from the cancellation of debt if the payment of the debt would have been a deductible expense.

 

I hope this helps!

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Accept as solution"

View solution in original post

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