More interestingly, how would the 1099-C work in such a case. Wouldn't it be lik...

patio11 · on Nov 9, 2012

sigh No.

If you buy $10k of debt for $500, the debt buying business' basis in the debt is $500. If they cancel it, they can deduct $500.

If $10k of your debt is forgiven, you get 1099-C'ed for $10k in income.

Net-net, this would cause $9.5k in income if you went through with it.

Firehed · on Nov 9, 2012

Still, taxes on $9500 are way lower than the $10000 you originally owed, so it sounds like a win.

Until everyone starts doing this and the whole system collapses, at least. That money isn't coming from thin air.

ChristianMarks · on Nov 9, 2012

Sure it is: it's called fractional reserve banking.