Do I have to pay taxes on deceased husband's debt?

To Her Credit with Sally Herigstad

Sally Herigstad is a certified public accountant and the author of “Help! I Can't Pay My Bills: Surviving a Financial Crisis.” She writes “To Her Credit,” a weekly reader Q&A column about issues involving women and credit, for CreditCards.com. She also has written for MSN Money and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

Ask Sally a question, or see if your question has already been answered in the To Her Credit answer archive.

I just received a Form 1099-C for 2017 from Citibank (Home Depot credit card) for my deceased husband. He passed away June 2011, and he was insolvent at that time. There was no estate. Do I have to do anything with this?

It doesn’t matter why they waited so long to send a Form 1099-C. Your name is not on the Form 1099-C and it is not a joint debt, and you are not filing a joint return with your husband at this point. You are not required to report the canceled debt on your own return, nor should you do so.

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Dear To Her Credit,
I just received a Form 1099-C for 2017 from Citibank (Home Depot credit card) for my deceased husband. He passed away June 2011, and he was insolvent at that time. There was no estate.

The “event code” listed on Form 1099-C is “E.”

Do I have to do anything with this? The card was in his name only, and so is the Form 1099-C. Thank you for your help.  – Cindy

Dear Cindy,

A 1099-C form is issued when a debt of at least $600 less than the original balance is written off by a lender. Then that amount is considered income and typically has to be included on your tax return. However, the event code “E” means the debt was canceled due to probate or similar proceeding, according to the Internal Revenue Service. In other words, it was canceled because he died. It’s interesting that the bank waited six years to file a Form 1099-C, unless it hadn’t noticed until recently that he had passed.

It doesn’t matter why the bank waited so long to send a Form 1099-C. Your name is not on the Form 1099-C, and you are not filing a joint return with your husband at this point. You are not required to report the canceled debt on your own return, nor should you do so.

If your husband had an estate, and if the estate had not been insolvent (had money in it to pay debts), the estate would have had to pay tax on any canceled debt. Of course, if your husband had enough assets to pay his debts and had an estate, the credit card company would have lined up with the other creditors, expecting to get paid, so there would be no canceled debt.

Are surviving spouses liable for unpaid debts?

Some people worry about whether they may be considered liable for their spouse’s debt, especially if they lived in a community property state at the time of the death. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Alaska – an opt-in community property state.

If surviving spouses are liable for “community debt,” the reasoning goes, they are required to report income from the cancellation of debt as well. The IRS instructions for canceled debt in Publication 4681, however, do not say anything about community property rules. The IRS describes situations in which both spouses receive a Form 1099-C for the same debt and how they should allocate the canceled debt income. But they do not tell taxpayers to claim canceled debt income that is reported in their spouse’s name.

If the Form 1099-C had erroneously had been in your name, as sometimes happens, you would need to contact Citibank and tell the bank to reissue the form in the correct name. Never ignore an informational form, such as a Form 1099-MISC, 1099-R or 1099-C. The IRS gets a copy of each of these forms, and if the IRS doesn’t see the income reported on your return, its computers will flag your return and you’ll get a notice in the mail.

It’s incredible how much paperwork is involved after someone dies – even when there were few assets and no estate. Here it is, seven years after the event, and you’re still getting mail for him! Fortunately, you can file this form and not give it another thought. Take care, and best of everything to you as you build your financial future on your own.

Tip

Tip: When a cardholder dies, the most critical question in whether the living still bear responsibility for a dead person’s debt is: Was the account individual, or shared? If a spouse, family member, or business partner signed the card application as a co-signer (joint account holder), then that person will be held liable for the balance on that card, along with (or instead of) the estate.

See related: What happens to credit card debt after death?, 6 steps to take when a cardholder dies, 6 exceptions to paying taxes on forgiven debt


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Updated: 06-23-2018