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What is the tax rate on thecancellation of debt?


If my debt was $3000 and my creditor forgave $2000. What would be the approx rate or amount that we need to prepare to pay to the IRS? Is there a tax table available online for this? Or a general rate?

538 day(s) ago

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Answers (6)

EchoMan 		You enter the cancellation of debt on Line 21 of Form 1040 as other income. It is added to all your other income and taxed at the same rate. If you are in the 15% tax bracket, your additional tax would be at most $300.

However, if you were in solvent or bankrupt at the time of the cancellation of debt, you may be able to exclude all or part of the cancelled debt from your income. If this applies, attach Form 982 to your tax return.

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BruinCPA 		To Be honest,It will take a little time to find the answer for the question of yours.have a look at the resource here http://www.DebtFreetips.info/debt-free.htm for your reference .


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MelonsO 		Assuming you live in the US, I am 90% sure it is taxed as general income, so it is taxed at your marginal tax rate (the rate at which the last dollar you earn is taxed). We have a progressive tax system, so the first $X you earn is taxed at one rate, then the next $Y you earn at another rate.

irs.gov has tax tables.

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brandonm 		COD income is taxed as ordinary income. The rate depends upon your marginal tax bracket. The brackets currently range from 10% to 35%, however if your total income is very low there may be no tax due at all from the COD.

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NessaCPA 		Same as ordinary income

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MariaT 		$2000 times your tax bracket - so if youi are in a 15% bracket, would be $300.

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