The tax impact of debt forgiveness or cancellation depends on your individual facts and circumstances. Generally, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
There are several exceptions to the taxability of cancelled debt, such as insolvency or bankruptcy. For more information, see The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.

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