Possibly, According to the IRS, if a debt is canceled,
forgiven or discharged, you must include the canceled amount in your gross
income, and pay taxes on that “income,” unless you qualify for an exclusion or
exception. Creditors who forgive $600 or more are required to file Form 1099-C with the IRS.
Cancelled, forgiven, and discharged debt is considered taxable
income, unless it qualifies for an exclusion or
an exception.
Normally the debt is reported on Form 1099-C. Make sure you enter your 1099-C in TurboTax even if it qualifies for an exclusion
or an exception.
Exclusions
- Cancellation
of qualified principal residence indebtedness, better known as mortgage debt relief;
- Debt cancelled in a Title 11
bankruptcy;
- Debt cancelled during
insolvency (the amount exceeding your assets);
- Cancellation of qualified
farm or real property indebtedness.
If the debt qualifies for any of these exclusions,
TurboTax will complete Form 982 and include it with your return.
Exceptions
- Certain qualified student
loans;
- Money excluded from income
by law, such as gifts or bequests;
- Cancelled debt that if paid
by a cash-basis taxpayer would otherwise be deductible;
- A qualified purchase price
reduction given by a seller;
- Any Pay-for-Performance
Success Payments that reduce the principal balance of your mortgage under
the Home Affordable Modification Program.
Tip: If your creditor
is still trying to collect on your debt, it's not considered cancelled,
forgiven, or discharged. There is no taxable income to report, not even if you
got a 1099-C from the creditor.
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