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Q:
Do I have to pay taxes on forgiven debt?

Is it true that for any debt that is forgiven, including a charge-off, you have to pay income taxes on it? I have three charge-offs and nothing was ever sent to me or written to me telling me I had to pay taxes on it. -Barry

Barry,

I understand your confusion. Credit terminology is almost as confusing as tax terminology! A "charge-off" is not necessarily a forgiven debt. The term "charge-off” means that your creditor, for their own tax and accounting purposes, has internally reclassified your account from profitable to unprofitable. In other words, you may still owe the debt.

The creditor will send you an IRS Form 1099-C, Cancellation of Debt, if they consider it forgiven. Until that time, you should not have to pay income tax on the charged off account. 

Because I am not a trained accountant, you may want to call the IRS to verify. They can be reached at 800.829.1040.

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