CANCELLATION OF DEBT 1099C RECEIVED BY A TAXPAYER WHO CO-SIGNED FOR SON.
THIS WAS SON'S PRIMARY. TAXPAYER RECEIVED 1099C ALSO. WHAT IS TAXPAYERS LIABILTY IF THE SON CLAIMS THE CANCELLATION ON HIS RETURN?
DOES TAXPAYER HAVE ANY OUT?
http://www.irs.gov/publications/p4681/ch01.html#en_US_publink1000244074
Persons who receive a Form 1099-C showing the full amount of debt. If you and another person were jointly and severally liable for a debt that is canceled, each of you may get a Form 1099-C showing the entire amount of the canceled debt. However, you may not have to report that entire amount as income. The amount, if any, you must report depends on all the facts and circumstances, including:
State law,
The amount of debt proceeds each person received,
How much of any interest deduction from the debt was claimed by each person,
How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and
Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication.
My taxpayer signed jointly with her son. Each had received the full amount of this debt cancellation on a separate1099c. This was the house he alone resided in. Mother lives in another state.
Son has already filed. The whole amount of the 1099c was entered on his return.
How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner
I interpret this as the son would get all basis in home so Mother may not be on the hook for any of it.
Any one else have an opinion?
I agree with you. That does not absolve mom from reporting it to avoid a nasty letter down the road. I would put on line 21 as an in and an out with nominee interest as description. Then attached a statement about the situation referencing the beneficial owner was the son and how he reported it on his return. This is going to become much more frequent in the next few years.
Thanks for the input. I'm going to use the line 21 suggestion and attach a statement. I also a copy of the son's tax return showing that he claimed the entire Cancellation. Do you believe that It would help to attach this part of his 1040?
PAMAC
To: LeAnn and Shannon:
Mother co-signed only to enable the son to obtain a mortgage. She has her own home in another state. The assumption at the time of closing was that she would only be involved until the son built up enough equity or time on his job to qualify on his own.
There was no intention on her part for any other involvement in his life. This is not an uncommon practice and like one user stated this type of a cancellation of debt will happen more often.
Thanks: RB McNeill
