Cancellation of Debt - Insolvency

Understand the tax implications of canceled debt and how insolvency can provide relief. This guide explains when canceled debt is considered taxable income and how insolvency can reduce or eliminate the tax burden. It includes practical examples, the use of Form 1099-C, and guidance on calculating insolvency.

Highlights:

• Taxable Cancellation of Debt: Learn when canceled debt must be reported as taxable income.

• Insolvency Exception: Understand how insolvency can reduce taxable income from canceled debt.

• Form 982: Instructions on using this form to exclude canceled debt from income and reduce tax attributes.

• Real-World Examples: Illustrative scenarios to help clarify complex rules.