Possibly.
According to the IRS, nearly any debt you owe that is canceled, forgiven or discharged becomes taxable income to you. You'll receive a Form 1099-C, "Cancellation of Debt," from the lender that forgave the debt.
For more information, please see When to Use Tax Form 1099-C for Cancellation of Debt.
But even if you receive a Form 1099-C from a lender, you still may be able to avoid taxation on the forgiveness of a debt. If your debt was discharged in a Title 11 bankruptcy proceeding, such as a Chapter 7 or Chapter 13 case, you're not responsible for taxes on that debt. Also, if you can demonstrate to the IRS that you were insolvent at the time the debt was cancelled, you can similarly avoid taxes on that debt.
To qualify for the insolvency, you must show that all of your liabilities (debts) were more than the Fair Market Value of all of your assets immediately before the cancellation of debt.
To show that you are insolvent and are excluding your canceled debt from income, you must fill out Form 982. Although the form is available in Turbo Tax, it is not available on line. You would have to use a cd/download and fill out the form manually, there is no interview questions for this.
I recommend that you first read the following links and fill out the insolvency worksheet and the form from the IRS website. Once you have completed it, purchase the cd/download to enter the forms' information into the software.
Please refer to page 5 for insolvency explanation and page 8 for insolvency worksheet:
https://www.irs.gov/pub/irs-pdf/p4681.pdf
Form 982 and its instructions:
https://www.irs.gov/pub/irs-pdf/f982.pdf
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