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How can I avoid paying tax on cancelled or forgiven debt? |
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Certain exceptions and exclusions are available to taxpayers, which provide them with relief from paying the ordinary income tax owed on cancelled debt. For example, if the cancelled debt is considered deductible debt, relates to a Home Modification Program or is the result of a price reduction after the purchase of a home, then generally these amounts are excluded from income. If the debt is not part of these exceptions, then the debt may still be excluded if it is due to Bankruptcy, Insolvency or if it is considered Qualified Principal Residence Indebtedness or Qualified Real Property Business Indebtedness. The tax rules relating to these exclusions are complex, so it is important that you seek the experience of a qualified tax professional. |
