Do we need to include my dad’s reduced credit card debts onto my mom’s income tax?
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my dad passed away last year and we just finished paying my dad’s credit card debts and they were all settlement payments. My question is do we need to include that on my mom’s income tax? the debts are under my dad’s name.
thank you.
If your parents file jointly then yes the forgiveness of debt needs to be reported as required for the 1099C’s received. You should probably go ahead and seek tax advice this year. Estate needs complicate your moms tax situation and they can look at all the best options to legally limit last years tax liability. Well worth the money this year.
You need the advice of an attorney on this, but normally debts have nothing to do with income tax unless they are related to your primary home or business investments.
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If your parents file jointly then yes the forgiveness of debt needs to be reported as required for the 1099C’s received. You should probably go ahead and seek tax advice this year. Estate needs complicate your moms tax situation and they can look at all the best options to legally limit last years tax liability. Well worth the money this year.
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If your parents were married on the date of your father’s death, your mother may choose to file a joint return or a separate return.
If she files a joint return, she includes the cancelled debt from your father’s credit card debt on the return.
If she files a separate return, she does not include her spouse’s cancelled debt. The deceased spouse’s filing status will be married filing separately. The deceased spouse is required to file a tax return if the income for the deceased spouse is $3,500 or more. The cancelled debt will be included as income on his return.
Your mother should figure the tax both as a joint return and separate return, and do what is most beneficial for her. If she lives in a community property state, there are additional considerations and she should consult a local tax advisor.
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Dear Jessica: Your mom will file MFJ as your dad was alive for a part of the year. The software should write "deceased" across the top of the tax form. If you are filing a paper return you write across the top of the return. The credit card pay off is not recorded on your tax return unless the credit card companies forgave a portion of the debt and issued a 1099-C (cancellation of debt). The 1099-C amount would be income. If you are getting a refund your mom will NOT need to file form 1310 (claim of refund). As she is the surviving spouse. Sorry for your loss.
This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Master Tax advisor Enrolled Agent
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