Surprise! Forgiven debt may be taxable income

http://lifeinc.today.com/_news/2013/03/15/17314914-surprise-forgiven-debt-may-be-taxable-income?lite

By Herb Weisbaum, TODAY contributor

Creditors are often willing to negotiate a significant discount to settle a debt they know the customer can’t pay in full. Millions of Americans buried in consumer debt took advantage of such a settlement offer last year.
Now it’s time to pay taxes on the part of the debt that was forgiven.
“If you had any debt that was forgiven and the amount you saved was more than $600, the IRS considers that taxable income,” said Bill Hardekopf, CEO of Lowcards.com. “You need to claim that on your tax return.”
Let’s say you owed the credit card company $15,000 and they let you settle the account for only $10,000. The $5,000 they forgave is taxable. If you’re in the 15 percent tax bracket, you’d owe $750. Clearly, that’s easier on your budget than the $5,000 you owed, but it could come as quite a shock if you didn’t know about it.

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