Your Life

Your Life

Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.

Posts: 1
Registered: ‎09-02-2016

Filing Separately or Jointly



I am married and living in California.  Currently I'm going thru a debt settlement service.  Credit cards debt is under my name only.  Assuming my creditors will send me 1099-C forms at the end of the year, I am wondering if there are any advantages if filing separately?


I understand that I will need to file a IRS-982 and P-4681 in order to find out if I am qualified for ful or partial insolvency.  In P-4681 there's a insolvency worksheet needs to be listed for both debts and assets.  Since my wife has most of our assests under her name only.  For example: car, stocks, some equity on the house.  Should we file separately?


Your help and advice is greatly appreciates.





Trusted Council Member
Posts: 6,191
Registered: ‎02-23-2016

Re: Filing Separately or Jointly

[ Edited ]

Hi shutterbug,


Welcome to the community.


Typically filing jointly is the more beneficial option because of all of the restrictions on different things that come with filing separate returns.  Filing separately can be more beneficial in certain situations although you do not necessarily need to file separately in this case because married taxpayers are considered two individual taxpayers for purposes of the insolvency exclusion.


Since this cancelled debt is yours alone your insolvency exclusion is calculated using only your assets and liabilities regardless of your filing status.  This can be somewhat more complex under certain circumstances, for example if you live in a community property state.


A couple of notes about the insolvency calculation:


  • You must include all of your retirement accounts in your assets when figuring insolvency.  I mention this because thisis the one asset that many people don't realize must be included in the calculation.


  • You must calculate insolvency based upon the amounts of your assets and liabilities immediately before the debt was cancelled.



If you would like to compare filing separately with filing jointly to see which will yield the better outcome in your particular case I suggest using the H&R Block tax calculator to run your scenario both ways.


A tax professional at your local H&R Block office can also be of assistance with this as they will be able to look at it with you, figure out what all must be included in your insolvency calculation (it can be more complex if for example you live in a community property state) and show which way for sure will be the better way to go.  This is what I would recommend that you do when you get ready to file your tax return.


I hope this helps you out & please ask if you have any other questions.

Posts: 1
Registered: ‎04-13-2017

Re: Filing Separately or Jointly

this answers one of my questions.  I can file jointly and still perform the insolvency for myself to hopefully negate the cancel of debt that i had on a house that i owned in my name only before I married.


the other question i have is how to take into account the following items in the insolvency test:

a car just in my wifes name (no payment)

our current house ( in both our names) plus the remaining mortgage (in both our names).  50%? 100%  i live in the state of nc.

all household items (couches, tvs, appliances, clothing(his and hers?), hobby equipment for just one of us)?

pension just in my name

401k in her name