Skip to main content
June 4, 2019
Question

Do I have to pay State of Wisconsin taxes on cancellation of debt from form 1099-c even if I was insolvent at time of cancellation?

  • June 4, 2019
  • 1 reply
  • 0 views

We are married filing jointly.  It was forgiven on the Federal tax return.  It was for a foreclosure on our primary resident and we were insolvent at the time.

1 reply

DanielV01
Employee
June 4, 2019

Wisconsin will not tax you to the point you were insolvent.  Wisconsin does not follow the Federal treatment, which was extended with the Bipartisan Budget Act of 2018 that allowed Cancellation of Debt income on a Foreclosure to continue to be exempted for Federal Income tax (up to 250,000).  However, as this website shows (click on following link), Wisconsin only forgives the taxability of the cancellation based on insolvency:  DOR Practitioner Updates - Questions and Answers - Wisconsin ...  Please note this excerpt:  

IRC Update

Question:For federal tax purposes, income from abandonment of personal residence reported on Form 1099-A, is excluded from federal income. Is this included in the discharge of indebtedness for Wisconsin such that income is included for Wisconsin?

Answer: Based on the 1099-A instructions, there could be discharge of indebtedness income from the abandonment of a home. This would not be taxable for federal purposes for a home that is a principal residence. The principal residence exception does not apply for Wisconsin. The income from discharge of indebtedness would be taxable for Wisconsin unless the taxpayer was insolvent at the time or in a bankruptcy case. (Italics added)

Following are the instructions for Form 1099-A for the borrower.

"Certain lenders who acquire an interest in property that was security for a loan or who have reason to know that such property has been abandoned must provide you with this statement. You may have reportable income or loss because of such acquisition or abandonment. Gain or loss from an acquisition generally is measured by the difference between your adjusted basis in the property and the amount of your debt canceled in exchange for the property, or, if greater, the sale proceeds. If you abandoned the property, you may have income from the discharge of indebtedness in the amount of the unpaid balance of your canceled debt."

Note that the 1099-A does not have a box for income. It only reports the balance of principal outstanding and the fair market value of the property.


You state that you were insolvent, but it is likely that Wisconsin will require you to submit proof of the insolvency.  You may use the Form 982 provision in TurboTax to do so if you have not already done so.  Please see the following FAQ for more information:  https://ttlc.intuit.com/replies/3300645

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"