Debt Negotiation Advice

I live in Texas. How much can I expect to pay in capital gains tax of $23,000 from a credit card settlement?

Let me clarify, I used a debt negotiation company to successfully settle a $30,000 bank loan for $7000 and the bank said that since there is a $23,000 difference, I must file a 1099 and pay a capital gains tax to the IRS. *What is my best "legal" loophole/strategy to utilize in this situation? *FYI: Tax-wise, I file SINGLE and my salary is in the range of 65K-70K.

Public Comments

1. You won't pay Capital Gains tax you will pay Ordinary Income Tax. With this extra income, you are probably going be in the 28% bracket meaning that the tax will be $6440. Maybe a little less as part of this money will be in the 25% bracket. If you are bankrupt or insolvent at the time of the forgiveness, you don't have to pay taxes on the amount up to the point of insolvency. Insolvency means that your total debts exceed your total assets at the time just before the debt forgiveness. See Form 982. Most software packages do not include this form so you will probably have to see a professional. Don't try this on your own.