Table of Contents
Future Developments. Information about any future developments affecting Publication 4681 (such as legislation enacted after we release it) will be posted at www.irs.gov/pub4681.
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This publication explains the federal tax treatment of canceled debts, foreclosures, repossessions, and abandonments.
Generally, if you owe a debt to someone else and they cancel or forgive that debt for less than its full amount, you are treated for income tax purposes as having income and may have to pay tax on this income.
This publication generally refers to debt that is canceled, forgiven, or discharged for less than the full amount of the debt as “canceled debt.”
Sometimes a debt, or part of a debt, that you do not have to pay is not considered canceled debt. These exceptions are discussed later under Exceptions .
Sometimes a canceled debt may be excluded from your income. But if you do exclude canceled debt from income, you may be required to reduce your “tax attributes.” These exclusions and the reduction of tax attributes associated with them are discussed later under Exclusions .
Foreclosure and repossession are remedies that your lender may exercise if you fail to make payments on your loan and you have previously granted that lender a mortgage or other security interest in some of your property. These remedies allow the lender to seize or sell the property securing the loan. When your property is foreclosed upon or repossessed and sold, you are treated as having sold the property and you may recognize taxable gain. Whether you also recognize income from canceled debt depends in part on whether you are personally liable for the debt and in part on whether the outstanding loan balance is more than the fair market value (FMV) of the property. Figuring your gain or loss and income from canceled debt arising from a foreclosure or repossession is discussed later under Foreclosures and Repossessions .
Generally, you abandon property when you voluntarily and permanently give up possession and use of property you own with the intention of ending your ownership but without passing it on to anyone else. Figuring your gain or loss and income from canceled debt arising from an abandonment is discussed later under Abandonments .
This publication also includes detailed examples with filled-in forms.
Internal Revenue Service
Tax Forms and Publications Division
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613
225 Farmer's Tax Guide
334 Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
523 Selling Your Home
525 Taxable and Nontaxable Income
536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts
544 Sales and Other Dispositions of Assets
551 Basis of Assets
908 Bankruptcy Tax Guide
Form (and Instructions)
982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)
1099-C Cancellation of Debt
1099-DIV Dividends and Distributions
3800 General Business Credit
The sections of this publication that apply to you depend on the type of debt canceled, the tax attributes you have, and whether or not you continue to own the property that was subject to the debt. Some examples of common circumstances are provided in the following paragraphs to help guide you through this publication. These examples do not cover every situation but are intended to provide general guidance for the most common situations.
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