Will the IRS tax you if your car was repossessed?

When the IRS has a tax lien against you, they are legally able to seize any possession you have that has the lien issued upon it. If creditors you have that allowed you to purchase your car repossess the car due to delinquent payments, the IRS cannot tax you on the car anymore because it is no longer in your possession, but the repossession will take a major stab at your credit score making it increasingly difficult to apply for loans and credit cards. However, in the situation where the creditor(s) "writes off" the debt or lists the debt as a "cancellation of debt" on a Form 1099-C, then the debt is wiped away. In That case, the IRS views that cancellation of debt as income and that would become taxable and be added to the rest of the income on your tax return.

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