What is publication 4681 of the IRS?
Information about Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, including recent updates and related forms. Publication 4681 explains the federal tax treatment of canceled debts, foreclosures, repossessions, and abandonments.
What are the tax treatment of canceled debts?
1. Canceled Debts This chapter discusses the tax treatment of canceled debts. General Rules Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered can- celed in whatever amount it remained unpaid.
What is ordinary income from the cancellation of a debt?
Your ordinary income from the cancellation of the debt is the amount of the debt in excess of the FMV of the property that the lender forgives. You must include this cancellation of debt in your income unless an exception or exclusion, discussed below, applies.