It is the rule that if you get tax exemption, you have to show it as income in your tax returns. There are few exceptions to forgiven debt tax:
Debts canceled when you were insolvent
This is the most sweeping exception, because debt is generally only canceled when debtors are “insolvent.”
Student loans forgiven after you worked a period of time
If your debt was cancelled on basis of loan forgiveness provision on service in the field of your work, then you are not suppose to include that debt as income in your returns.
Debts discharged in bankruptcy
If you filed for bankruptcy protection, do not report the canceled debt as income.
Mortgage debt forgiven due to foreclosure
Mortgage Forgiveness Debt Relief Act, took effect in year 2007. You do not have to pay tax on debt forgiven when you lost your home.
Cancellation of debt as a gift
If the cancellation of debt is a gift, it’s not income. Generally, the IRS will believe you if you say that a property or asset is a gift and it’s between parties such as family members or friends. The IRS takes a dim view of taxpayers claiming that canceled debt from banks, employers or anyone else with whom you have a strictly working relationship are “gifts.”
My Tax Help MD is one of the best platforms where you can get all kinds of IRS tax help and settlement services. Having a team of professional tax consultants, we provide diverse IRS tax debt relief service. We can help you in file delinquent tax returns, audit representation, tax lien, payroll issues, and plenty of other tax concerns.