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Will forgiven medical debt be taxed on estate 1041?

Forum|Forum|4 years ago
September 23, 2021
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Hello,

The estate, located in Arizona, negotiated $60,811 of medical debt forgiven with the collection agency’s lawyer. The original debtor reduced the account to zero and the collection agency removed their claim on the estate. I have not yet received a 1099C, and they have not stated intent to do so, but I would like to get the taxes done ASAP, rather than waiting into early 2022 to see if they file one. Is this $60,811 taxable to the estate income on 1041 as other income, or, could it be considered income that could have been deducted under Section 108(e)(2), and not need to be reported as taxable income? Below is an article relating to the subject.

https://www.forbes.com/sites/anthonynitti/2016/06/06/john-oliver-buys-and-forgives-15-million-in-medical-debt-but-is-the-forgiveness-taxable/?ss=taxes&sh=93d033cb4f09

Thank you for your time

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Best answer by M-MTax

Is the estate insolvent? I'll have to guess it isn't. Anyway, the problem you're going to have is cancellation of debt is income and an estate can't deduct medical expenses on a 1041. So it doesn't matter that it was medical debt that was discharged.

M-MTaxAnswer

Is the estate insolvent? I'll have to guess it isn't. Anyway, the problem you're going to have is cancellation of debt is income and an estate can't deduct medical expenses on a 1041. So it doesn't matter that it was medical debt that was discharged.