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Richardson TX - Cancellation of Debt. Is it Income or Excludable?
You probably know that if you borrow money, and you are legally obligated to repay that debt at a future date, and the debt is either forgiven in full or in part by the lender, the amount of cancelled debt must be reported as income on your tax return. However, did you know that there are situations where the law allows you to exclude the amount from your gross income? There are many taxpayers who come into our Richardson Texas office that are not aware of those potential exclusions.
When debt is canceled, the lender may send a Form 1099-C that identifies the amount and date of cancellation among other things. The taxpayer is required to report the amount of cancelled debt as Other Income on Form 1040.
When Canceled Debt is excluded from Income
This article will discuss amounts of Canceled Debt excluded from income. There are also situations when canceled debt is not considered income such as when canceled as a gift. When Canceled Debt meeting the requirements for exclusion, they will not be taxable.
IRS Tax Topic 431 list the following as Exclusions From Gross Income
Debt canceled in a Title 11 bankruptcy case Debt canceled during insolvency Cancellation of ... more
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