Cancellation of debt

[Jaystadpole1]

What is the name of your state (only U.S. law)? Alabama I divorced in May 2009. We had a cancellation of debt in Sept 2009 on an RV trailer in the amount of $10,000. My ex was the primary and i was the co-signor. I paid $5000 in cash myself to get the bank to settle on the other 10,000. Who has to claim the debt as income on taxes? Or do we have to split the 10,000 debt?

 

[FlyingRon]

As far as the iRS is concerned, you each are responsible for half. It doesn't matter "primary" vs. "cosigner" nor what you actually paid that wasn't forgiven. Of course, the IRS just wants someone to pay tax on it, so if you guys can work out an agreement all the income can go to one person.

 

[LdiJ]

As far as the iRS is concerned, you each are responsible for half. It doesn't matter "primary" vs. "cosigner" nor what you actually paid that wasn't forgiven. Of course, the IRS just wants someone to pay tax on it, so if you guys can work out an agreement all the income can go to one person.

For practical purposes that probably isn't accurate. Even though they were co-borrowers the 1099C is going to get reported in only one social security number, and that is almost guaranteed to be the primary social security number.

Its also not 100% guaranteed that the 1099C will get issued for 2009. It should, but sometimes there is a lag.

 

[HappyWanderer]

I think this is not that easy a question. There are all kinds of things going on. The first is the practical LdiJ mentioned, the wife will have her SSN on the 1099-C.

The next is the basic theory for COD income. The person who's debt was canceled had gotten benefit from the debt and so when repayment was forgiven the borrower has, in a very real sense, received "income". I'd have to do a bit of research on IRS treatment, as I don't know it offhand, but the same would not apply to a co-signer. I'd say the borrower has the COD and not the co-signer.

Here, of course, we have a co-signer actually getting benefit from the loan, but yet Alabama is not a community property state. I think any real answer would require research and a lot more facts.

 

[Jaystadpole1]

Update

I have received the 1099 on the cancellation of debt. The 1099 came in both our names.

 

[LdiJ]

I have received the 1099 on the cancellation of debt. The 1099 came in both our names.

Whose social security number is on it?

 

[Jaystadpole1]

The tax ID number only has his social security number listed.

 

[LdiJ]

The tax ID number only has his social security number listed.

Then the IRS is only going to go after him for the cancelation of debt income.

 

[Jaystadpole1]

Thank you for all the help