If You Were Broke, You Don't Need To Pay Taxes On Forgiven Debt

Here’s an important caveat to our “You Need To Pay Taxes On Forgiven Credit Card Debt,” post: you don’t need to pay the taxes if you were insolvent at the time the debt was discharged.

The IRS defines a taxpayer as insolvent, “when his or her total liabilities exceed his or her total assets.” In other words, when you owe more than you have.

In this case you would just include form 982 and check off the box where it asks if you’re insolvent. Do not include this amount on line 19 of the 1040 if you were insolvent at the time.

PREVIOUSLY: You Need To Pay Taxes On Forgiven Credit Card Debt