Generally, cancelled, forgiven, and discharged debt is considered taxable income, unless it qualifies for exclusion or an exception.
However, under Excluded debt in IRS Publication 17, Your Federal Income Tax, the IRS instructs
"Don’t include a canceled debt in your gross income in the following situations.
- The debt is canceled in a bankruptcy case under title 11 of the U.S. Code. See Pub. 908, Bankruptcy Tax Guide.
- The debt is canceled when you’re insolvent. However, you can’t exclude any amount of canceled debt that’s more than the amount by which you’re insolvent. See
Pub. 908.
- The debt is qualified farm debt and is canceled by a qualified person. See chapter 3 of Pub. 225, Farmer's Tax Guide.
- The debt is qualified real property business debt. See chapter 5 of Pub. 334.
- The cancellation is intended as a gift.
- The debt is qualified principal residence indebtedness."
If any of these apply, and you aren’t otherwise required to file a return, you don’t need to file.
Related TurboTax articles:
Do I need to file a federal return this year?
Is cancelled, forgiven, or discharged debt taxable?
How do I enter a 1099-C?
[Edited 03|18|2020 11:02 am]
