A taxpayer will be able to exclude all the income from their canceled debt if they:

(A) Received a Form 1099-C with $17,400 in box 2 and $15,700 in box 7, and they were insolvent by $15,800.

(B) Had $11,500 of debt canceled. Immediately prior to the cancellation, they were insolvent by $12,000.

(C) Had a debt of $7,850 canceled. Immediately prior to the debt, they were insolvent by $6,500.

(D) Had a debt of $5,400 canceled. Immediately prior to the debt, they were insolvent by $2,750.

Question

Business

Rylee Gonzalez

7 June, 09:00

A taxpayer will be able to exclude all the income from their canceled debt if they:

(A) Received a Form 1099-C with $17,400 in box 2 and $15,700 in box 7, and they were insolvent by $15,800.

(B) Had $11,500 of debt canceled. Immediately prior to the cancellation, they were insolvent by $12,000.

(C) Had a debt of $7,850 canceled. Immediately prior to the debt, they were insolvent by $6,500.

(D) Had a debt of $5,400 canceled. Immediately prior to the debt, they were insolvent by $2,750.

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Answers (1)

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Charmer · Answer 1

Option B is correct

Explanation:

This is because debt owed is higher than his debt canceled, which makes him qualified for insolvency exclusion which means that all canceled debt income is not included in the taxable income.