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Old 10-06-2015, 06:34 PM
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Can CANCELED DEBT (Other Income L-29) be excluded when computing 8962 Premium Tax Credit?

My wife and I are self-employed. She has a marketplace policy.

After spending days running the worksheets and steps involved, I am way OVER the 400% poverty line.

This is because I have CANCELED DEBT income of over $28K that shows on L-21 of my 1040! I am trying to find out if this canceled debt MUST be included as income on the 1040 when calculating my Premium Tax Credit? It just does not seem "fair" since it is NOT part of our Sched C income (so was not part of our qualifying questions from Marketplace) and resulted when we partially paid off our credit cards with borrowed funds to eliminate our credit cards. What a bonehead move!

BOTTOM LINE: Can I NOT show CANCELLED DEBT INCOME on LINE 29 of 1040 to compute my 8962 for Premium Tax Credit?

Thanks so much for any help!



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Old 10-07-2015, 05:00 AM
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Quote:
Originally Posted by taxwacked View Post
My wife and I are self-employed. She has a marketplace policy.

After spending days running the worksheets and steps involved, I am way OVER the 400% poverty line.

This is because I have CANCELED DEBT income of over $28K that shows on L-21 of my 1040! I am trying to find out if this canceled debt MUST be included as income on the 1040 when calculating my Premium Tax Credit? It just does not seem "fair" since it is NOT part of our Sched C income (so was not part of our qualifying questions from Marketplace) and resulted when we partially paid off our credit cards with borrowed funds to eliminate our credit cards. What a bonehead move!

BOTTOM LINE: Can I NOT show CANCELLED DEBT INCOME on LINE 29 of 1040 to compute my 8962 for Premium Tax Credit?

Thanks so much for any help!
My wife and I are self-employed. She has a marketplace policy.

After spending days running the worksheets and steps involved, I am way OVER the 400% poverty line.

This is because I have CANCELED DEBT income of over $28K that shows on L-21 of my 1040! I am trying to find out if this canceled debt MUST be included as income on the 1040 when calculating my Premium Tax Credit? ========>In most casers yes; canceled debt generally is taxable. For example, if you owe $10K on a credit card and negotiate the balance down to $3K, then the $7K that the creditor forgives is considered $7K in taxable income to you.



Please read below for more info;

It just does not seem "fair" since it is NOT part of our Sched C income (so was not part of our qualifying questions from Marketplace) and resulted when we partially paid off our credit cards with borrowed funds to eliminate our credit cards. What a bonehead move! ===>As you said it is not your Sch C earned income however, it is STILL taxable income as other income as you did not Pay tax at least on the canceled debt income.plz read below.

BOTTOM LINE: Can I NOT show CANCELLED DEBT INCOME on LINE 29 of 1040 to compute my 8962 for Premium Tax Credit?======>You must report it on yur return;aslongas your canceled debt income is taxable, you , as you can see MUST report it on your 1040 line 21 as part of your AGI; just for reference. If your debt is cancelled by a bank, the bank must report it to the IRS. The IRS requires banks to report cancellation of debt . The main exception to paying tax on cancelled debt is if you can show that you were insolvent when the debt was cancelled. To be insolvent means that you had more debts than assets. If you couldn’t pay your bills and the bank cancelled your debt, you probably qualify. You must have been insolvent immediately before the debt was cancelled.



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