Canceled Debt – Is It Taxable or Not? Related Homework Help Online

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The amount of debt that is canceled or forgiven by the lender for various reasons is known as canceled debt. It is also known as Cancellation of Debt or COD. The canceled amount is taxable while there is certain exception where it is not. These circumstances have been discussed in the following section of Canceled Debt – Is It Taxable or Not? Related Homework Help Online. A Form- 1099-C is sent by the lender in which the amount of cancellation of debt, the date of cancellation and other things are mentioned. In case there is incorrect information in Form 1099-C then he/she must contact the creditor for corrections. It is the responsibility of the borrower to report the taxable amount of canceled debt as income on the tax return for the year. For example, say X took out a loan of $4000. X paid off $2000 but due to some financial circumstances he/she can no longer make the payments. After many failed attempts to collect, the creditor decides to cancel or forgive the debt. The remaining $2000 that X did not pay is considered to be his/her income gain. If the canceled debt exceeds $600 then it is taxable. Cancellation of Debt (COD) can be studied in a detailed manner by referring Canceled Debt – Is It Taxable or Not? Related Homework Help Online.
 

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Canceled Debt – Is It Taxable or Not?

 
A canceled debt can be both taxable and nontaxable. Let us discuss various situations where a canceled debt is taxable and nontaxable. The debt canceled by the lender will be taxable in the following situations mentioned in Canceled Debt – Is It Taxable or Not? Related Homework Help Online.
 
• When the lender stops collecting the debt.
 
• If real estate is involved as canceled debt, then the taxable income and amount of COD will depend on- the fair market value of the real estate, the sale price of the property, the borrower’s tax basis in the property, whether the loan was recourse or nonrecourse and whether they were real estate taxes. To know more about canceled debt and other terms related to it such as course loans, nonrecourse loans, foreclosure, bankruptcy, etc. can be studied in Canceled Debt – Is It Taxable or Not? Related Homework Help Online.
The debt canceled by the lender will not be taxable in the following situations mentioned in Canceled Debt – Is It Taxable or Not? Related Homework Help Online.
 
• The debt will not be taxable if it was discharged in bankruptcy.
• The debt will not be taxable if it was less than $600.
• The debt will not be taxable if it was an inheritance or gift from a relative or friend.
• The amount of debt that includes education loan forgiveness in certain areas to provide health services. To know more about canceled debt, please refer Canceled Debt – Is It Taxable or Not? Related Homework Help Online..
 
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