Maybe. If you can can demonstrate to the IRS that you were insolvent at the time the debt was cancelled, you can avoid taxes on that debt.
You will need to complete a Form 982, Reduction of Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Basis Adjustment). You should include the form with your tax return.
To insert the form in your return, do the following:
- Type Form 982 in Search
- Click Jump to form 982
- Begin navigating through the interview section to determine if you quality for an exclusion from income.
