What is Cancellation of Debt?

Cancellation of debt is the release from collection activity on a debt by a lender without consideration from the debtor. In other words, the person or institution you borrowed money from releases you from the responsibility to repay that debt. Normally, if you have the use of money, that you are now not obligated to repay, it must be treated as income. There are lots of exceptions and exclusions to that statement and we will review many of them.

As with most things in taxes, you must move through this subject in a specific order and not jump around. You must make certain determinations in a specific order to see how Read More

This is the beginning of a 15 part series on Cancellation of Debt.

With the plunge in the economy over the last several years we, as tax professionals, have seen an increasing number of our clients coming in with cancellation of debt, foreclosures and bankruptcies. From canceled credit cards, repossessed cars, defaulted payday loans, and bad business loans, to our clients losing their homes, we have seen it all. What most clients don’t realize is that along with these issues come tax consequences. It is our job, as tax professionals, to help reduce or eliminate those consequences to the greatest extent possible.

We will discuss and review the following procedures: Read More