1099-C for spouse who died in 2019

[k9lover]

My client received a 1099-C in her spouse's name and SSN for 2021. He passed away in 2019. She lives in California, a community property state. Is she responsible for reporting the debt cancellation on her return? Thank you!

[BobKamman]

Was she responsible for the debt?  Not all debt is community.  Was there an estate?  Was it settled before the debts were paid, and was she a beneficiary?

[k9lover]

She was not responsible for the debt. All joint assets passed to her (house, retirement income, vehicles)

The house was sold before the 1099-C was received. I'm not sure if she needs to claim the debt relief on her return since there was no estate per se. Should that debt have been paid off when the house was sold? Is she now responsible for the debt relief since she didn't pay it off?

Thanks so much for your input.

[BobKamman · Accepted solution]

Those are all fact-specific questions and the legal issues have to be sorted out before the tax answer can be found.  Did the creditor ever try to collect the debt from her? Are they still trying?  Maybe they haven't sent her a 1099-C yet because they think they can still collect it from her.  

A canceled debt is still taxable even though no 1099-C is issued.  A canceled debt may not be taxable even if a 1099-C is issued.  Focus on what happened, not on the piece of paper.  

And as I am reminding a probate client, the issuance of a 1099-C is not a defense if the bank decides to sue the estate (or its beneficiaries) for it anyway.  

[k9lover]

Thank you so much! These are great points to consider. I so appreciate your answering this query.