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Okay my hubby received a 1099-c from original creditor that has been filed with the IRS. Now he just received a letter from a collection agency asking him to make a payment. The one he received from the collection agency is actually asking for more money than what was listed on the 1099-c. Does he have to also have to pay this collection agency in addition to the 1099-c? Is this legal??????
First he should ask for debt validation from the collection agency. If the collection agency validates the debt and your hubby repays the debt in full to the collection agency, he need not fill up the 1099 C form. However, if the debt is settled for less with the collection agency, and if the debt forgiveness exceeds $600, he need to fill up the 1099 C form.
Yes, Carol is right. You need to pay tax only if the debt forgiven exceeds $600, else not. This is because, the amount forgiven is the part of the debt you never paid back and so it is considered a part of your income and therefore, you need to pay tax on that amount and hence you need to fill up the 1099 C form.
Determined, This just happened to my mother-in-law on an old mortgage. They sold off the property for dirt cheap and then she got the same form showing the unpaid amount as an income. From what I understand is if the debt is sold they can still come back and collect the amount if the debt is in SOL. Does anyone know how this process actually works?
I can not understand how you can pay the taxes on something that is considered an oncome and then still be made pay the debt. Isn't this like paying the debt twice? As for my mother-in-,aw she paid over $4000 in taxes and still has collectors trying to collect the debt. I would also like to know if this is legal.
He already filed the 1099c when we did our income tax this year. Does this mean he still has to pay the collection agency even though he paid taxes on it?
No, if he has already paid taxes on the amount, he need not pay the amount to the collection agency on which the tax has already been paid. If the collection agency asks for the debt, he can show them the proof that he had already paid taxes on that amount.
Fireyone,
They have taken the debts for some kind of value addition( say a home) towards them, hence they have to pay the debts. But when it comes to income, they have earned on sale, hence you pay the taxes. Because many states give rebates on your income for home loans.
If you sale your home, you have rabate upto $250,000 (500,000 in mariied joint filing) on tax. Above that you need to pay tax. Consult a professional for exact rebate limits. But they are legal.