How would Canceled Debt be Excluded from Taxable Income?
Canceled debts that are eligible for exclusion from income, that don’t require payments in full or partially, are considered exclusions to cancellations of debt income. These exclusions include:nnDebt canceled in bankruptcy,nDebt canceled due to inability to pay debtsnQualified principal residence indebtedness cancellation (before January 1, 2018)nQualified farm indebtedness cancellationnQualified real property business indebtedness cancellationnExclusions can only be used once you apply the exceptions. Once you use the exclusions, you most likely have to reduce your tax attributes. If you are confused at this point, especially in regard to debt forgiveness tax, don’t feel alone – this is where we are well-equipped to help.