The National Directory of Certified Public Accountants

Ask A CPA - Cancellation of Debt

Is A Debt Cancellation Taxable?

If a debt is cancelled or forgiven other than as a gift or bequest the debtor generally must include the cancelled amount in gross income for tax purposes. Qualified principal residence indebtness is excluded from income. Exclusions are also allowed for business real estate debt or farm debt of insolvent and bankrupt individuals. The exclusions are allowed for up to 2 million of debt.

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