Page 13 - Tax Information for Individuals - Handbook0

Cancelled Debt (1/3)

Is it taxable or not?

If you borrow money and are legally obligated to
repay a fixed or determinable amount at a future
date, you have a debt. You may be personally
liable for a debt or may own a property that's
subject to a debt.
If your debt is forgiven or discharged for less than
the full amount you owe, the debt is considered
canceled in the amount that you don't have to
pay. The law provides several exceptions,
however, in which the amount you don't have to
pay isn't canceled debt. These exceptions will be
discussed later. Cancellation of a debt may occur if
the creditor can't collect, or gives up on collecting,
the amount you're obligated to pay. If you own
property subject to a debt, cancellation of the debt
also may occur because of a foreclosure, a
repossession, a voluntary transfer of the property
to the lender, abandonment of the property, or a
mortgage modification.

See - https://www.irs.gov/taxtopics/tc431

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