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E File 1040ezE file 1040ez 1. E file 1040ez Canceled Debts Table of Contents General RulesForm 1099-C Discounts and loan modifications Sales or other dispositions (such as foreclosures and repossessions) Abandonments Stockholder debt This chapter discusses the tax treatment of canceled debts. E file 1040ez General Rules Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered canceled in whatever amount it remained unpaid. E file 1040ez There are exceptions to this rule, discussed under Exceptions , later. E file 1040ez Generally, you must include the canceled debt in your income. E file 1040ez However, you may be able to exclude the canceled debt. E file 1040ez See Exclusions , later. E file 1040ez Example. E file 1040ez John owed $1,000 to Mary. E file 1040ez Mary agreed to accept and John paid $400 in satisfaction of the entire debt. E file 1040ez John has canceled debt of $600. E file 1040ez Example. E file 1040ez Margaret owed $1,000 to Henry. E file 1040ez Henry and Margaret agreed that Margaret would provide Henry with services (instead of money) in full satisfaction of the debt. E file 1040ez Margaret does not have canceled debt. E file 1040ez Instead, she has income from services. E file 1040ez A debt includes any indebtedness: For which you are liable, or Subject to which you hold property. E file 1040ez Debt for which you are personally liable is recourse debt. E file 1040ez All other debt is nonrecourse debt. E file 1040ez If you are not personally liable for the debt, you do not have ordinary income from the cancellation of debt unless you retain the collateral and either: The lender offers a discount for the early payment of the debt, or The lender agrees to a loan modification that results in the reduction of the principal balance of the debt. E file 1040ez See Discounts and loan modifications , later. E file 1040ez However, upon the disposition of the property securing a nonrecourse debt, the amount realized includes the entire unpaid amount of the debt, not just the FMV of the property. E file 1040ez As a result, you may realize a gain or loss if the outstanding debt immediately before the disposition is more or less than your adjusted basis in the property. E file 1040ez For more details on figuring your gain or loss, see chapter 2 of this publication or see Publication 544. E file 1040ez There are several exceptions and exclusions that may result in part or all of a canceled debt being nontaxable. E file 1040ez See Exceptions and Exclusions, later. E file 1040ez You must report any taxable canceled debt as ordinary income on: Form 1040 or Form 1040NR, line 21, if the debt is a nonbusiness debt; Schedule C (Form 1040), line 6 (or Schedule C-EZ (Form 1040), line 1), if the debt is related to a nonfarm sole proprietorship; Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property; Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or Schedule F (Form 1040), line 8, if the debt is farm debt and you are a farmer. E file 1040ez Form 1099-C If you receive a Form 1099-C, that means an applicable entity has reported an identifiable event to the IRS regarding a debt you owe. E file 1040ez The identifiable event may be an actual cancellation of the debt or it may be an event the applicable entity is required, solely for purposes of reporting to the IRS, to treat as a cancellation of debt. E file 1040ez For information on the reasons an applicable entity files Form 1099-C, see Identifiable event codes, later. E file 1040ez Unless you meet one of the exceptions or exclusions discussed later, this canceled debt is ordinary income and must be reported on the appropriate form discussed above. E file 1040ez An applicable entity includes: A federal government agency, A financial institution, A credit union, and Any organization a significant trade or business of which is lending money. E file 1040ez Identifiable event codes. E file 1040ez Box 6 of Form 1099-C should indicate the reason the creditor filed this form. E file 1040ez The codes shown in box 6 are explained below. E file 1040ez Also see the chart after the explanation for a quick reference guide for the codes used in Box 6. E file 1040ez Note. E file 1040ez Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. E file 1040ez However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness. E file 1040ez Code A — Bankruptcy. E file 1040ez Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case. E file 1040ez See Bankruptcy , later. E file 1040ez Code B — Other judicial debt relief. E file 1040ez Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy. E file 1040ez Code C — Statute of limitations or expiration of deficiency period. E file 1040ez Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. E file 1040ez In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired. E file 1040ez Code D — Foreclosure election. E file 1040ez Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor's right to pursue collection of the debt. E file 1040ez This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised. E file 1040ez Code E — Debt relief from probate or similar proceeding. E file 1040ez Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding. E file 1040ez Code F — By agreement. E file 1040ez Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration. E file 1040ez Code G — Decision or policy to discontinue collection. E file 1040ez Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. E file 1040ez For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice. E file 1040ez Code H — Expiration of nonpayment testing period. E file 1040ez Code H is used to indicate that the creditor has not received a payment on the debt during a testing period ending on December 31, 2013. E file 1040ez The testing period is a 36-month period increased by the number of months the creditor was prevented from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. E file 1040ez This identifiable event applies only for a creditor that is a financial institution or credit union (and certain of their subsidiaries), the Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corporation (RTC), National Credit Union Administration (NCUA), and other Federal executive agencies. E file 1040ez Expiration of the nonpayment testing period does not necessarily result from an actual discharge of indebtedness. E file 1040ez Code I — Other actual discharge before identifiable event. E file 1040ez Code I is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through H. E file 1040ez Form 1099-C Reference Guide for Box 6 Identifiable Event Codes A Bankruptcy B Other judicial debt relief C Statute of limitations or expiration of deficiency period D Foreclosure election E Debt relief from probate or similar proceeding F By agreement G Decision or policy to discontinue collection H Expiration of nonpayment testing period I Other actual discharge before identifiable event Even if you did not receive a Form 1099-C, you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies. E file 1040ez Amount of canceled debt. E file 1040ez The amount in box 2 of Form 1099-C may represent some or all of the debt that has been canceled or treated as canceled. E file 1040ez The amount in box 2 will include principal and may include interest and other nonprincipal amounts (such as fees or penalties). E file 1040ez Unless you meet one of the exceptions or exclusions discussed later, the amount of the debt that has been canceled is ordinary income and must be reported on the appropriate form as discussed earlier. E file 1040ez Interest included in canceled debt. E file 1040ez If any interest is included in the amount of canceled debt in box 2, it will be shown in box 3. E file 1040ez Whether the interest portion of the canceled debt must be included in your income depends on whether the interest would be deductible if you paid it. E file 1040ez See Deductible Debt under Exceptions, later. E file 1040ez Persons who each receive a Form 1099-C showing the full amount of debt. E file 1040ez If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. E file 1040ez However, you may not have to report that entire amount as income. E file 1040ez The amount, if any, you must report depends on all the facts and circumstances, including: State law, The amount of debt proceeds each person received, How much of any interest deduction from the debt was claimed by each person, How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication. E file 1040ez See Example 3 under Insolvency, later. E file 1040ez Discounts and loan modifications If a lender discounts (reduces) the principal balance of a loan because you pay it off early, or agrees to a loan modification (a “workout”) that includes a reduction in the principal balance of a loan, the amount of the discount or the amount of principal reduction is canceled debt. E file 1040ez However, if the debt is nonrecourse and you did not retain the collateral, you do not have cancellation of the debt income. E file 1040ez The amount of the canceled debt must be included in income unless one of the exceptions or exclusions described later applies. E file 1040ez For more details, see Exceptions and Exclusions, later. E file 1040ez Sales or other dispositions (such as foreclosures and repossessions) Recourse debt. E file 1040ez If you owned property that was subject to a recourse debt in excess of the FMV of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss. E file 1040ez The gain or loss on the disposition of the property is measured by the difference between the FMV of the property at the time of the disposition and your adjusted basis (usually your cost) in the property. E file 1040ez The character of the gain or loss (such as ordinary or capital) is determined by the character of the property. E file 1040ez If the lender forgives all or part of the amount of the debt in excess of the FMV of the property, the cancellation of the excess debt may result in ordinary income. E file 1040ez The ordinary income from the cancellation of debt (the excess of the canceled debt over the FMV of the property) must be included in your gross income reported on your tax return unless one of the exceptions or exclusions described later applies. E file 1040ez For more details, see Exceptions and Exclusions, later. E file 1040ez Nonrecourse debt. E file 1040ez If you owned property that was subject to a nonrecourse debt in excess of the FMV of the property, the lender's foreclosure on the property does not result in ordinary income from the cancellation of debt. E file 1040ez The entire amount of the nonrecourse debt is treated as an amount realized on the disposition of the property. E file 1040ez The gain or loss on the disposition of the property is measured by the difference between the total amount realized (the entire amount of the nonrecourse debt plus the amount of cash and the FMV of any property received) and your adjusted basis in the property. E file 1040ez The character of the gain or loss is determined by the character of the property. E file 1040ez More information. E file 1040ez See Publications 523, 544, and 551, and chapter 2 of this publication for more details. E file 1040ez Abandonments Recourse debt. E file 1040ez If you abandon property that secures a debt for which you are personally liable (recourse debt) and the debt is canceled, you will realize ordinary income equal to the canceled debt. E file 1040ez You must report this income on your tax return unless one of the exceptions or exclusions described later applies. E file 1040ez For more details, see Exceptions and Exclusions, later. E file 1040ez This income is separate from any amount realized from the abandonment of the property. E file 1040ez For more details, see chapter 3. E file 1040ez Nonrecourse debt. E file 1040ez If you abandon property that secures a debt for which you are not personally liable (nonrecourse debt), you may realize gain or loss but will not have cancellation of indebtedness income. E file 1040ez Stockholder debt If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution. E file 1040ez For more information, see Publication 542, Corporations. E file 1040ez Prev Up Next Home More Online Publications
Learn about your health insurance options. Get information about the Health Insurance Marketplace, Medicare, Medicaid, and other programs to help you pay for your medical expenses.
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Health Insurance Overview
Health care is expensive and few individuals can afford to pay the full costs. Having health insurance allows you to get the treatment you need without incurring huge medical bills.
Most Americans have private health insurance or participate in public programs, such as Medicare or Medicaid, but many Americans are uninsured due to finances and/or pre-existing conditions.
Under the Affordable Care Act, all Americans will be able to get health insurance regardless of income or health history.
Affordable Care Act
The Affordable Care Act allows all Americans to get comprehensive health insurance and offers new rights and protections. Some provisions of the law have already taken effect while others will be implemented in the coming years.
You can now enroll in health insurance through your state's Health Insurance Marketplace. The Marketplace can help you compare plans and find one that fits your needs and budget.
States decide on the benefits provided under Medicaid, but Medicaid usually provides health care for low-income children and families, and people with disabilities. Covered services usually include doctor visits, hospital care, vaccinations, prescription drugs, vision, hearing, long-term care, and preventive care for children.
- State Medicaid Programs – Learn about the Medicaid program in your state, and how to apply. Note that if you're not eligible for Medicaid now, you may qualify in 2014, when new rules take effect in most states.
- Medicaid and the Health Insurance Marketplace – If you are eligible for Medicaid, you don't need to buy coverage through the Health Insurance Marketplace.
Medicare is a government health insurance plan for people 65 or older, people under 65 with certain disabilities, and people with end-stage renal disease. Medicare helps to pay for care in hospitals, skilled nursing facilities, hospice care, and some home health care. Coverage can also include doctors’ services and prescription drugs.
Under the health care law, Medicare benefits have been expanded for preventive care and drug coverage. Medicare is not part of the Health Insurance Marketplace, so—if you have Medicare—you will not need to take any action as a result of the new Marketplace.
- Medicare – Learn about the Medicare program; enroll online; and find a Medicare-enrolled doctor or health care facility.
- Replace Your Medicare Card – If your Medicare card is lost, stolen, or damaged, you can ask for a new one online.
COBRA: Keep Your Insurance If You Leave Your Job
The Consolidated Omnibus Budget Reconciliation Act (COBRA) can help you temporarily keep your health insurance even though you left your job. Eligibility for the program is based on the reason you left your job, and even if you get to keep your insurance, you may be required to pay the entire premium for coverage.
- COBRA – Learn more about the costs and benefits of the COBRA program.
- An Employee's Guide to Health Benefits Under COBRA – This booklet explains your rights under COBRA to a temporary extension of employer-provided group health coverage, called COBRA continuation coverage.
Starting in 2014, you may change from COBRA coverage to Marketplace health insurance coverage. Losing your COBRA coverage qualifies you to buy health insurance in the Marketplace, even if it's not during open enrollment. This is true whether your coverage runs out, or you choose to end it.
Health Insurance for Children: CHIP
The Children’s Health Insurance Program (CHIP) provides free or low-cost health coverage for low-income children. Each state decides on the benefits provided under CHIP, but all states cover routine check-ups, immunizations, hospital care, dental care, and lab and x-ray services.
- Health Coverage Programs in Your State – Find child insurance programs and participating health care providers in your state.
- Free Vaccines for Children – Free vaccines are available for children younger than 19, who are medicaid-eligible, uninsured, underinsured, American Indian, or Alaska Native.
- Preventive Benefits Under the Health Insurance Marketplace – All Marketplace health plans and many other plans must cover certain preventive services for children without charging a copayment or coinsurance.
How to Appeal a Health Insurance Claim
If your health insurer has denied coverage for medical care you received, you have the right to appeal the claim, and ask that the company reverse that decision. You can be your own health care advocate. Follow these five steps:
- Review your policy and explanation of benefits.
- Contact your insurer and keep detailed records of your contacts (copies of letters, time and date of conversations).
- Request documentation from your doctor or employer to support your case.
- Write a formal complaint letter explaining what care was denied and why you are appealing through use of the company's internal review process.
- If the internal appeal is not granted through step four, file a claim with your state's insurance department.