Excluding Debt Forgiveness from Taxable Income

Over the last few years individuals who have had debt forgiven, have been receiving 1099’s for the amount of debt canceled, which is generally considered to be taxable income. However, in the following instances, it can be excluded from taxable income; 1) debt discharged through bankruptcy, 2) taxpayer was insolvent, 3) discharge of qualified farm indebtedness, 4) discharge of qualified real property business indebtedness, or 5) discharge of qualified principal residence indebtedness. If you received a form 1099-C, it is possible that the income is not taxable. A good summary of this topic can be found at http://www.irs.gov/taxtopics/tc431.html.