Is canceled debt taxable?
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. The canceled debt isn't taxable, however,
How do you calculate canceled debt on a tax return?
Enter the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately before the cancellation (use the worksheet to find this figure). You may also have to fill out part II of the form. If your canceled debt is qualified principal residence indebtedness, it’s not includible in your income.
What do you need to know about cancellation of debt?
Here’s what you need to know. The lender or business owed the debt will sometimes issue Form 1099-C, Cancellation of Debt, to you for the forgiven amount. The IRS also gets a copy of Form 1099-C. The IRS will expect to see that amount reported on your tax return. But what if you qualify for an exclusion or an exception?