Decedent 1099-C

Today TaxMama hears from Thomas in Maryland who tells us. “I was legally separated from my spouse 3 years ago. My spouse passed away 2 years ago. I just received a 1099-C tax statement addressed to her estate. Since I was legally separated, am I obligated to report the 1099-c amount on my taxes?”

Dear Thomas,

Let’s see if we can sort this out, OK?

You didn’t file joint returns after you were separated, right?

You don’t say how much the debt was, or what debt was cancelled – credit card debt, in her name; mortgage debt on her separate mortgage or a joint mortgage; debt from a car loan…? The source makes a difference.

The big question is – who inherited your wife’s estate? If you inherited, then you owned the property and had the right to dispose of it or resolve it.

If you are the trustee of the estate, you are responsible for settling the estate, including dealing with the debts. The trustee may need to file a tax return for the decedent’s trust – Form 1041 to report the cancellation of debt. Naturally, if there are no assets in the estate, you can use insolvency to reduce the debt and owe no taxes. If there were assets…that’s another story.

You do say that the 1099-C was address to your wife’s estate, not to you. So I doubt if you need to include it on your tax return. After all, you can’t file jointly anymore, even if you wanted to. She died two years ago.

However, you’ve clearly left out a lot of information. I don’t feel comfortable giving you a definitive answer. Please, sit down with a good, local tax professional and have them review all the aspects of this situation, OK? Someone needs to see the whole picture, so this doesn’t haunt you in future years.

Take care of yourself.

And remember, you can find answers to all kinds of questions about debt cancellation and other tax issues, free. Where? Where else? At TaxMama.com

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