In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.
What qualifies as cancellation of debt?
Cancellation of debt (COD) occurs when a creditor relieves a debtor from a debt obligation. Debtors may be able to negotiate with a creditor directly for debt forgiveness. They can also receive debt cancellation through a debt relief program or by filing for bankruptcy.
What are exceptions to recognizing income from the cancellation of debt?
There is no exemption from the filing requirement if canceled debt in excess of $600.00 is recognized. One exception to the requirement to file 1099-C is when a student loan has been discharged due to the death or permanent disability of the borrower under provisions of the Tax Cuts and Jobs Act of 2017.
Is cancellation of debt considered passive income?
For purposes of section 469 of the Code, COD income is characterized as income from a passive activity to the extent that, at the time the indebtedness is discharged, the debt is allocated to passive activity expenditures and as income from a nonpassive activity to the extent that, at the time indebtedness is