Home Foreclosure and Debt Cancellation: Income Tax Effects

Glenn Tyndall, CPA

Glenn Tyndall, CPA

glenn@tyndallcpa.com

Tel: (904)568-2839

What is Cancellation of Debt?

Cancelled debt is any money borrowed from a commercial lender that the lender later forgives such that you are no longer obligated to repay the debt. This cancelled debt may be included in income for tax purposes and 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.

Example.

Is Cancellation of Debt income always taxable?

Cancelled debt is not always taxable. The most common reasons for excluded cancelled debt from gross income are:

I lost my home through foreclosure. What are the tax consequences?

There are two possible consequences you must consider:

I lost money on the foreclosure of my home. Can I claim a loss on my tax return?

No. Losses from the sale or foreclosure are not deductible.