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            Publication 4681
            Cat. No. 51508F                                                    Contents
                                                                               What's New   . . . . . . . . . . . . . . . . . . 1
Department 
of the      Canceled Debts,                                                    Reminder . . . . . . . . . . . . . . . . . . . . 2
Treasury
Internal                                                                       Introduction . . . . . . . . . . . . . . . . . . 2
Revenue     Foreclosures, 
Service                                                                        Common Situations Covered in 
                                                                               This Publication          . . . . . . . . . . . . . 2
            Repossessions, 
                                                                               Chapter  1.  Canceled Debts        . . . . . . . . 3
                                                                               Form 1099-C      . . . . . . . . . . . . . . . 3
            and                                                                Discounts and Loan 
                                                                                           Modifications . . . . . . . . . . . . . 4
                                                                               Sales or Other Dispositions 
            Abandonments                                                                   (Such as Foreclosures and 
                                                                                           Repossessions)   . . . . . . . . . . . 4
                                                                               Abandonments . . . . . . . . . . . . . . 4
            (for Individuals)                                                  Stockholder Debt . . . . . . . . . . . . . 4
                                                                               Exceptions . . . . . . . . . . . . . . . . . . . 4
                                                                               Gifts, Bequests, Devises, and 
            For use in preparing                                                           Inheritances . . . . . . . . . . . . . . 4
                                                                               Student Loans      . . . . . . . . . . . . . . 4
                                                                               Deductible Debt           . . . . . . . . . . . . . 5
            2022 Returns                                                       Price Reduced After Purchase              . . . . . 6
                                                                               Exclusions . . . . . . . . . . . . . . . . . . . 6
                                                                               Bankruptcy     . . . . . . . . . . . . . . . . 6
                                                                               Insolvency   . . . . . . . . . . . . . . . . . 6
                                                                               Insolvency Worksheet . . . . . . . . . . 7
                                                                               Qualified Farm Indebtedness . . . . . . 8
                                                                               Qualified Real Property 
                                                                                           Business Indebtedness    . . . . . . . 8
                                                                               Qualified Principal Residence 
                                                                                           Indebtedness . . . . . . . . . . . . . 9
                                                                               Reduction of Tax Attributes        . . . . . . .   10
                                                                               Qualified Principal Residence 
                                                                                           Indebtedness . . . . . . . . . . . .   10
                                                                               Bankruptcy and Insolvency            . . . . . .   10
                                                                               Qualified Farm Indebtedness . . . . .              11
                                                                               Qualified Real Property 
                                                                                           Business Indebtedness    . . . . . .   12
                                                                               Chapter  2.  Foreclosures and 
                                                                               Repossessions             . . . . . . . . . . . .  12
                                                                               Worksheet for Foreclosures and 
                                                                                           Reposessions   . . . . . . . . . . .   13
                                                                               Chapter  3.  Abandonments          . . . . . . .   14
                                                                               How To Get Tax Help        . . . . . . . . . . .   14

                                                                               Future Developments
                                                                               For  the  latest  information  about  developments 
                                                                               related  to  Pub.  4681,  such  as  legislation 
                                                                               enacted  after  it  was  published,  go  to  IRS.gov/
                                                                               Pub4681.

                                                                               What’s New
              Get forms and other information faster and easier at:            Discharge  of  qualified  principal  residence 
              • IRS.gov (English)         • IRS.gov/Korean (한국어)               indebtedness  before  2026.        Qualified  princi-
              • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)          pal  residence  indebtedness  can  be  excluded 
              • IRS.gov/Chinese (中文)      • IRS.gov/Vietnamese (Tiếng Việt)    from  income  for  discharges  before  January  1, 
                                                                               2026.

Oct 27, 2022

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                                                       Comments  and  suggestions.            We  welcome 
                                                       your comments about this publication and sug-
Reminders                                              gestions for future editions.                                Common Situations 
Discharge of student loan debt. If your stu-           You  can  send  us  comments  through                        Covered in This 
dent  loan  debt  was  discharged,  in  whole  or  in  IRS.gov/FormComments.  Or,  you  can  write  to 
part,  after  December  31,  2020,  the  amount  of    the  Internal  Revenue  Service,  Tax  Forms  and            Publication
debt  that  was  discharged  may  be  nontaxable.      Publications,  1111  Constitution  Ave.  NW, 
See Student Loans, later.                              IR-6526, Washington, DC 20224.                               The  sections  of  this  publication  that  apply  to 
Photographs of missing children. The Inter-            Although  we  can’t  respond  individually  to               you  depend  on  the  type  of  debt  canceled,  the 
nal Revenue Service is a proud partner with the        each comment received, we do appreciate your                 tax attributes you have, and whether or not you 
National  Center  for  Missing  &  Exploited           feedback and will consider your comments and                 continue to own the property that was subject to 
Children®  (NCMEC).  Photographs  of  missing          suggestions as we revise our tax forms, instruc-             the  debt.  Some  examples  of  common  circum-
children selected by the Center may appear in          tions,  and  publications.       Don’t send  tax  ques-      stances  are  provided  in  the  following  para-
this publication on pages that would otherwise         tions, tax returns, or payments to the above ad-             graphs to help guide you through this publica-
be  blank.  You  can  help  bring  these  children     dress.                                                       tion.  These  examples  don't  cover  every 
                                                                                                                    situation  but  are  intended  to  provide  general 
home by looking at the photographs and calling         Getting  answers  to  your  tax  questions.                  guidance for the most common situations.
800-THE-LOST  (800-843-5678)  if  you  recog-          If you have a tax question not answered by this 
nize a child.                                          publication or the               How To Get Tax Help section Nonbusiness credit card debt cancellation. 
                                                       at the end of this publication, go to the IRS In-            If you had a nonbusiness credit card debt can-
Introduction                                           teractive  Tax  Assistant  page  at          IRS.gov/        celed, you may be able to exclude the canceled 
                                                       Help/ITA where you can find topics by using the              debt from income if the cancellation occurred in 
This  publication  explains  the  federal  tax  treat- search feature or viewing the categories listed.             a title 11 bankruptcy case or you were insolvent 
ment  of  canceled  debts,  foreclosures,  repos-
sessions, and abandonments.                            Getting tax forms, instructions, and pub-                    immediately  before  the  cancellation.  You 
Generally,  if  you  owe  a  debt  to  someone         lications.  Go  to  IRS.gov/Forms  to  download              should also read Bankruptcy or Insolvency un-
else and they cancel or forgive that debt for less     current  and  prior-year  forms,  instructions,  and         der Exclusions in chapter 1 to see if you can ex-
than its full amount, you are treated for income       publications.                                                clude the canceled debt from income under one 
                                                                                                                    of those provisions. If you can exclude part or 
tax purposes as having income and may have             Ordering  tax  forms,  instructions,  and                    all  of  the  canceled  debt  from  income,  you 
to pay tax on this income.                             publications.           Go  to   IRS.gov/OrderForms  to      should  also  read Bankruptcy  and  Insolvency 
Note.   This  publication  generally  refers  to       order  current  forms,  instructions,  and  publica-         under Reduction of Tax Attributes in chapter 1.
debt  that  is  canceled,  forgiven,  or  discharged   tions;  call  800-829-3676  to  order  prior-year 
for less than the full amount of the debt as “can-     forms  and  instructions.  The  IRS  will  process           Personal vehicle repossession.    If you had a 
celed debt.”                                           your  order  for  forms  and  publications  as  soon         personal vehicle repossessed and disposed of 
                                                       as possible. Don’t resubmit requests you’ve al-              by the lender during the year, you will need to 
Sometimes a debt, or part of a debt, that you          ready sent us. You can get forms and publica-                determine  your  gain  or  nondeductible  loss  on 
don't  have  to  pay  isn't  considered  canceled      tions faster online.                                         the disposition. This is explained in chapter 2. If 
debt. These exceptions are discussed later un-                                                                      the  lender  also  canceled  all  or  part  of  the  re-
der Exceptions.                                        Useful Items                                                 maining amount of the loan, you may be able to 
Sometimes a canceled debt may be exclu-                You may want to see:                                         exclude  the  canceled  debt  from  income  if  the 
ded  from  your  income.  But  if  you  do  exclude                                                                 cancellation  occurred  in  a  title  11  bankruptcy 
                                                                                                                    case or you were insolvent immediately before 
canceled  debt  from  income,  you  may  be  re-       Publication                                                  the cancellation. You should read Bankruptcy or 
quired to reduce your “tax attributes.” These ex-
clusions and the reduction of tax attributes as-         225   225 Farmer's Tax Guide                               Insolvency under Exclusions in chapter 1 to see 
sociated  with  them  are  discussed  later  under                                                                  if  you  can  exclude  the  canceled  debt  from  in-
Exclusions.                                              334   334 Tax Guide for Small Business (For                come under one of those provisions. If you can 
Foreclosure and repossession are remedies                      Individuals Who Use Schedule C)                      exclude part or all of the canceled debt from in-
                                                                                                                    come, you should also read Bankruptcy and In-
that your lender may exercise if you fail to make        523   523 Selling Your Home                                solvency  under Reduction  of  Tax  Attributes  in 
payments on your loan and you have previously 
                                                                                                                    chapter 1.
granted that lender a mortgage or other security         525   525 Taxable and Nontaxable Income
interest  in  some  of  your  property.  These  rem-                                                                Main home foreclosure or abandonment.          If 
edies allow the lender to seize or sell the prop-        536   536 Net Operating Losses (NOLs) for                  a lender foreclosed on your main home during 
erty  securing  the  loan.  When  your  property  is           Individuals, Estates, and Trusts                     the year, you will need to determine your gain or 
foreclosed upon or repossessed and sold, you                                                                        loss  on  the  foreclosure.  Foreclosures  are  ex-
are treated as having sold the property and you          542   542 Corporations                                     plained in chapter 2 and abandonments are ex-
may recognize taxable gain. Whether you also                                                                        plained in chapter 3.
recognize income from canceled debt depends              544   544 Sales and Other Dispositions of 
in part on whether you are personally liable for               Assets                                               Main  home  loan  modification  (workout 
the debt and in part on whether the outstanding                                                                     agreement). If a lender agreed to a mortgage 
loan balance is more than the fair market value          551   551 Basis of Assets
                                                                                                                    loan modification (a “workout”) in 2021 that in-
(FMV) of the property. Figuring your gain or loss        908   908 Bankruptcy Tax Guide                             cluded  a  reduction  in  the  principal  balance  of 
and income from canceled debt arising from a                                                                        the  loan  in  2022,  you  should  read Qualified 
foreclosure  or  repossession  is  discussed  later                                                                 Principal Residence Indebtedness under Exclu-
under Foreclosures and Repossessions.                  Form (and Instructions)
                                                                                                                    sions in chapter 1 to see if you can exclude part 
Generally, you abandon property when you                 982   982 Reduction of Tax Attributes Due to               or all of the canceled debt from income. If you 
voluntarily and permanently give up possession                 Discharge of Indebtedness (and                       can  exclude  part  or  all  of  the  canceled  debt 
and use of property you own with the intention                 Section 1082 Basis Adjustment)                       from  income,  you  should  also  read  Qualified 
of ending your ownership but without passing it                                                                     Principal  Residence  Indebtedness  under Re-
on  to  anyone  else.  Figuring  your  gain  or  loss    1099-C         1099-C Cancellation of Debt                 duction of Tax Attributes in chapter 1.
and income from canceled debt arising from an 
abandonment  is  discussed  later  under Aban-           1099-DIV              1099-DIV Dividends and Distributions
donments.
                                                         3800      3800 General Business Credit

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• Form 4835, line 6, if the debt is related to a Code B—Other judicial debt relief. Code
farm rental activity for which you use Form B is used to identify cancellation of debt as a re-
4835 to report farm rental income based sult of a receivership, foreclosure, or similar fed-
1. on crops or livestock produced by a tenant; eral or state court proceeding other than bank-
or ruptcy.
• Schedule F (Form 1040), line 8, if the debt
is farm debt and you are a farmer. Code C—Statute of limitations or expira-
Canceled Debts tion of deficiency period. Code C is used to
identify cancellation of debt either when the
This chapter discusses the tax treatment of Form 1099-C statute of limitations for collecting the debt ex-
canceled debts. pires or when the statutory period for filing a
If you receive a Form 1099-C, that means an claim or beginning a deficiency judgment pro-
applicable entity has reported an identifiable ceeding expires. In the case of the expiration of
General Rules event to the IRS regarding a debt you owe. For a statute of limitations, an identifiable event oc-
information on the reasons an applicable entity curs only if and when your affirmative defense
Generally, if a debt for which you are personally files Form 1099-C, see Identifiable event codes, of the statute of limitations is upheld in a final
liable is forgiven or discharged for less than the later. Unless you meet one of the exceptions or judgment or decision in a judicial proceeding,
full amount owed, the debt is considered can- exclusions discussed later, this canceled debt and the period for appealing the judgment or
celed in whatever amount it remained unpaid. is ordinary income and must be reported on the decision has expired.
There are exceptions to this rule, discussed un- appropriate form discussed above. Code D—Foreclosure election. Code D is
der Exceptions, later. Generally, you must in- If you had a student loan that was dis- used to identify cancellation of debt when the
clude the canceled debt in your income. How- TIP charged after December 31, 2020, and creditor elects foreclosure remedies that statu-
ever, you may be able to exclude the canceled the amount of the discharged loan is torily end or bar the creditor's right to pursue
debt. See Exclusions, later. nontaxable, you won’t receive a Form 1099-C collection of the debt. This event applies to a
from the lender or servicer of your student loan. mortgage lender or holder who is barred from
Example. Terry owed $1,000 to Kelly. Kelly pursuing debt collection after a power of sale in
agreed to accept and Terry paid $400 in satis- the mortgage or deed of trust is exercised.
faction of the entire debt. Terry has canceled An applicable entity includes the following.
debt of $600. 1. A financial institution. Code E—Debt relief from probate or
similar proceeding. Code E is used to identify
Example. Kerry owed $1,000 to Courtney. 2. A credit union. cancellation of debt as a result of a probate
Courtney and Kerry agreed that Kerry would 3. Any of the following, its successor, or sub- court or similar legal proceeding.
provide Courtney with services (instead of unit of one of the following. Code F—By agreement. Code F is used to
money) in full satisfaction of the debt. Kerry identify cancellation of debt as a result of an
doesn’t have canceled debt. Instead, Kerry has a. The Federal Deposit Insurance Cor-
income from services. poration (FDIC). agreement between the creditor and the debtor
to cancel the debt at less than full considera-
A debt includes any indebtedness: b. The Resolution Trust Corporation tion.
• For which you are liable, or (RTC).
Code G—Decision or policy to discon-
• Subject to which you hold property. c. The National Credit Union Administra- tinue collection. Code G is used to identify
Debt for which you are personally liable is re- tion (NCUA). cancellation of debt as a result of a decision or
course debt. All other debt is nonrecourse debt. d. Any other federal executive agency, a defined policy of the creditor to discontinue
If you aren't personally liable for the debt, including government corporations, collection activity and cancel the debt. For pur-
you don't have ordinary income from the can- any military department, the U.S. poses of this identifiable event, a defined policy
cellation of debt unless you retain the collateral Postal Service, or the Postal Rate includes both a written policy and the creditor's
and either: Commission. established business practice.
• The lender offers a discount for the early Code H—Other actual discharge before
payment of the debt, or 4. A corporate subsidiary of a financial insti-
• The lender agrees to a loan modification tution or credit union (if the affiliation sub- identifiable event. Code H is used to identify
that results in the reduction of the principal jects the subsidiary to federal or state reg- an actual cancellation of debt that occurs before
balance of the debt. ulation). any of the identifiable events described in co-
des A through G.
See Discounts and Loan Modifications, later. 5. A federal government agency, including a
department, an agency, a court or court
However, upon the disposition of the prop- administrative office, or a judicial or legis- Form 1099-C Reference Guide for
erty securing a nonrecourse debt, the amount lative instrumentality. Box 6 Identifiable Event Codes
realized includes the entire unpaid amount of
the debt, not just the FMV of the property. As a 6. Any organization of which lending money A Bankruptcy
result, you may realize a gain or loss if the out- is a significant trade or business. B Other judicial debt relief
standing debt immediately before the disposi- For more information on the applicable entities C Statute of limitations or expiration of deficiency
tion is more or less than your adjusted basis in that must file a Form 1099-C, see the 2022 In- period
the property. For more details on figuring your structions for Forms 1099-A and 1099-C, avail- D Foreclosure election
gain or loss, see chapter 2 of this publication or able at IRS.gov/pub/irs-prior/i1099ac--2022.pdf. E Debt relief from probate or similar proceeding
see Pub. 544. F By agreement
There are several exceptions and exclu- Identifiable event codes. Box 6 of Form G Decision or policy to discontinue collection
sions that may result in part or all of a canceled 1099-C should indicate the reason the creditor H Other actual discharge before identifiable event
debt being nontaxable. See Exceptions and Ex- filed this form. The codes shown in box 6 are
clusions, later. You must report any taxable explained next. Also, see the chart after the ex- Even if you didn't receive a Form
canceled debt as ordinary income on: planation for a quick reference guide for the co- ! 1099-C, you must report canceled debt
• Schedule 1 (Form 1040), line 8c, if the des used in box 6. CAUTION as gross income on your tax return un-
debt is a nonbusiness debt; less one of the exceptions or exclusions descri-
• Schedule C (Form 1040), line 6, if the debt Code A—Bankruptcy. Code A is used to bed later applies.
is related to a nonfarm sole proprietorship; identify cancellation of debt as a result of a title
• Schedule E (Form 1040), line 3, if the debt 11 bankruptcy case. See Bankruptcy, later. Amount of canceled debt. The amount in
is related to nonfarm rental of real property; box 2 of Form 1099-C may represent some or
Chapter 1 Canceled Debts Page 3

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all of the debt that has been canceled. The as ordinary or capital) is determined by the Gifts, Bequests, Devises,
amount in box 2 will include principal and may character of the property. If the lender forgives
include interest and other nonprincipal amounts all or part of the amount of the debt in excess of and Inheritances
(such as fees or penalties). Unless you meet the FMV of the property, the cancellation of the In most cases, you don't have income from can-
one of the exceptions or exclusions discussed excess debt may result in ordinary income. The celed debt if the debt is canceled as a gift, be-
later, the amount of the debt that has been can- ordinary income from the cancellation of debt quest, devise, or inheritance.
celed is ordinary income and must be reported (the excess of the canceled debt over the FMV
on the appropriate form, as discussed earlier. of the property) must be included in your gross
income reported on your tax return unless one Student Loans
Interest included in canceled debt. If any in- of the exceptions or exclusions described later
terest is included in the amount of canceled applies. For more details, see Exceptions and Generally, if you are responsible for making
debt in box 2, it will be shown in box 3. Whether Exclusions, later. loan payments, and the loan is canceled or re-
the interest portion of the canceled debt must paid by someone else, you must include the
be included in your income depends on Nonrecourse debt. If you owned property that amount that was canceled or paid on your be-
whether the interest would be deductible if you was subject to a nonrecourse debt in excess of half in your gross income for tax purposes.
paid it. See Deductible Debt under Exceptions, the FMV of the property, the lender's foreclo- However, in certain circumstances, you may be
later. sure on the property doesn't result in ordinary able to exclude amounts from gross income as
income from the cancellation of debt. The entire a result of the cancellation or repayment of cer-
Persons who each receive a Form 1099-C amount of the nonrecourse debt is treated as an tain student loans. These exclusions are for:
showing the full amount of debt. If you and amount realized on the disposition of the prop- • Student loan cancellation due to meeting
another person were jointly and severally liable erty. The gain or loss on the disposition of the certain work requirements;
for a canceled debt, each of you may get a property is measured by the difference between • Cancellation of certain loans after Decem-
Form 1099-C showing the entire amount of the the total amount realized (the entire amount of ber 31, 2020, and before January 1, 2026;
canceled debt. However, you may not have to the nonrecourse debt plus the amount of cash or
report that entire amount as income. The and the FMV of any property received) and your • Student loan repayment assistance pro-
amount, if any, you must report depends on all adjusted basis in the property. The character of grams.
the facts and circumstances, including: the gain or loss is determined by the character
• State law, of the property. Exclusion for student loan cancellation due
• The amount of debt proceeds each person to meeting certain work requirements. If
received, More information. See chapter 2 of this publi- your student loan is canceled in part or in whole
• How much of any interest deduction from cation and Pubs. 523, 544, and 551 for more in 2022 due to meeting certain work require-
the debt was claimed by each person, details. ments, you may not have to include the can-
• How much of the basis of any co-owned celed debt in your income. To qualify for this
property bought with the debt proceeds work-related exclusion, your loan must have
was allocated to each co-owner, and Abandonments been made by a qualified lender to assist you in
• Whether the canceled debt qualifies for Recourse debt. If you abandon property that attending an eligible educational organization
any of the exceptions or exclusions descri- secures a debt for which you are personally lia- described in section 170(b)(1)(A)(ii). In addition,
bed in this publication. ble (recourse debt) and the debt is canceled, the cancellation must be pursuant to a provision
See Example 3 under Insolvency, later. you will realize ordinary income equal to the in the student loan that all or part of the debt will
canceled debt. You must report this income on be canceled if you work:
your tax return unless one of the exceptions or • For a certain period of time,
Discounts and Loan exclusions described later applies. For more • In certain professions, and
Modifications details, see Exceptions and Exclusions, later. • For any of a broad class of employers.
This income is separate from any amount real-
If a lender discounts (reduces) the principal bal- ized from the abandonment of the property. For The cancellation of your loan won’t
ance of a loan because you pay it off early, or more details, see chapter 3. ! qualify for tax-free treatment if it was
agrees to a loan modification (a “workout”) that CAUTION made by an educational organization
includes a reduction in the principal balance of Nonrecourse debt. If you abandon property or tax-exempt section 501(c)(3) organization
a loan, the amount of the discount or the that secures a debt for which you aren't person- and was canceled because of the services you
amount of principal reduction is canceled debt. ally liable (nonrecourse debt), you may realize performed for either organization. See Excep-
However, if the debt is nonrecourse and you gain or loss but won't have cancellation of in- tion, later.
didn't retain the collateral, you don't have can- debtedness income.
cellation of debt income. The amount of the Educational organization described in
canceled debt must be included in income un- section 170(b)(1)(A)(ii). This is an educa-
less one of the exceptions or exclusions descri- Stockholder Debt tional organization that maintains a regular fac-
bed later applies. For more details, see Excep- If you are a stockholder in a corporation and the ulty and curriculum and normally has a regularly
tions and Exclusions, later. corporation cancels or forgives your debt to it, enrolled body of students in attendance at the
the canceled debt is a constructive distribution. place where it carries on its educational activi-
Sales or Other Dispositions For more information, see Pub. 542. ties.
(Such as Foreclosures and Qualified lenders. These include the fol-
lowing.
Repossessions)
Exceptions 1. The United States, or an instrumentality or
Recourse debt. If you owned property that agency thereof.
was subject to a recourse debt in excess of the There are several exceptions to the require-
FMV of the property, the lender's foreclosure or ment that you include canceled debt in income. 2. A state, territory, or possession of the Uni-
repossession of the property is treated as a sale These exceptions apply before the exclusions ted States; or the District of Columbia; or
or disposition of the property by you and may discussed later and don't require you to reduce any political subdivision thereof.
result in your realization of gain or loss. The your tax attributes. 3. A public benefit corporation that is tax-ex-
gain or loss on the disposition of the property is empt under section 501(c)(3); and that
measured by the difference between the FMV has assumed control of a state, county, or
of the property at the time of the disposition and municipal hospital; and whose employees
your adjusted basis (usually your cost) in the are considered public employees under
property. The character of the gain or loss (such state law.
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4. An educational organization described in              Private  education  loan. A  private  education        • Religious.
  section 170(b)(1)(A)(ii), if the loan is               loan is a loan provided by a private educational       • Educational.
  made:                                                  lender that:                                           • Scientific.
       a. As part of an agreement with an entity         • Is not made, insured, or guaranteed under            • Literary.
       described in (1), (2), or (3) under                 Title IV of the Higher Education Act of              • Testing for public safety.
       which the funds to make the loan                    1965; and                                            • Fostering national or international amateur 
       were provided to the educational or-              • Is issued expressly for postsecondary edu-             sports competition (but only if none of its 
       ganization; or                                      cational expenses to a borrower, regard-               activities involve providing athletic facilities 
                                                           less of whether the loan is provided                   or equipment).
       b. Under a program of the educational               through the educational organization that            • The prevention of cruelty to children or ani-
       organization that is designed to en-                the student attends or directly to the bor-            mals.
       courage its students to serve in occu-              rower from the private educational lender. 
       pations with unmet needs or in areas                A private education loan does not include            Exception.   In most cases, the cancellation 
       with unmet needs where services pro-                an extension of credit under an open end             of  a  student  loan  made  by  an  educational  or-
       vided by the students (or former stu-               consumer credit plan, a reverse mortgage             ganization  because  of  services  you  performed 
       dents) are for or under the direction of            transaction, a residential mortgage trans-           for  that  organizationn  or  another  organization 
       a governmental unit or a tax-exempt                 action, or any other loan that is secured by         that provided the funds for the loan must be in-
       section 501(c)(3) organization.                     real property or a dwelling.                         cluded in gross income on your tax return.
                                                                                                                Refinanced  loan. If  you  refinanced  a  stu-
Special rule for student loan discharges for             Private educational lender. A private educa-           dent loan with another loan from an eligible ed-
2021  through  2025. The  American  Rescue               tional lender is one of the following.                 ucational  organization  or  a  tax-exempt  organi-
Plan Act of 2021 modified the treatment of stu-          • A financial institution that solicits, makes,        zation,  that  loan  may  also  be  considered  as 
dent  loan  forgiveness  for  discharges  in  2021         or extends private education loans.                  made by a qualified lender. The refinanced loan 
through 2025. Generally, if you are responsible          • A federal credit union that solicits, makes,         is considered made by a qualified lender if it’s 
for making loan payments, and the loan is can-             or extends private education loans.                  made under a program of the refinancing organ-
celed or repaid by someone else, you must in-            • Any other person engaged in the business             ization that is designed to encourage students 
clude the amount that was canceled or paid on              of soliciting, making, or extending private          to serve in occupations with unmet needs or in 
your behalf in your gross income for tax purpo-            education loans.                                     areas with unmet needs where the services re-
ses.  However,  in  certain  circumstances,  you                 The  cancellation  of  your  loan  won’t       quired of the students are for or under the direc-
                                                                                                                tion of a governmental unit or a tax-exempt sec-
may be able to exclude this amount from gross            !       qualify for tax-free treatment if it is can-   tion 501(c)(3) organization.
income if the loan was one of the following.             CAUTION celed  because  of  services  you  per-
• A loan for postsecondary educational ex-               formed  for  the  private  educational  lender  that 
  penses.                                                made the loan or other organization that provi-        Student  loan  repayment  assistance.     Stu-
• A private education loan.                              ded the funds.                                         dent loan repayments made to you are tax free 
• A loan from an educational organization                                                                       if you received them for any of the following.
  described in section 170(b)(1)(A)(ii).                                                                        • The National Health Service Corps 
• A loan from an organization exempt from                Loan from an educational organization de-                (NHSC) Loan Repayment Program.
  tax under section 501(a) to refinance a stu-           scribed  in  section  170(b)(1)(A)(ii). This  is       • A state education loan repayment program 
  dent loan.                                             any loan made by the organization if the loan is         eligible for funds under the Public Health 
                                                         made:                                                    Service Act.
Loan for postsecondary educational expen-                • As part of an agreement with an entity de-           • Any other state loan repayment or loan for-
ses.   This  is  any  loan  provided  expressly  for       scribed earlier under which the funds to               giveness program that is intended to pro-
postsecondary     education,  regardless      of           make the loan were provided to the educa-              vide for the increased availability of health 
whether  provided  through  the  educational  or-          tional organization; or                                services in underserved or health profes-
ganization  or  directly  to  the  borrower,  if  such   • Under a program of the educational organi-             sional shortage areas (as determined by 
loan was made, insured, or guaranteed by one               zation that is designed to encourage its               such state).
of the following.                                          students to serve in occupations with un-
• The United States, or an instrumentality or              met needs or in areas with unmet needs                       You can’t deduct the interest you paid 
  agency thereof.                                          where the services provided by the stu-              !       on  a  student  loan  to  the  extent  pay-
• A state, territory, or possession of the Uni-            dents (or former students) are for or under          CAUTION ments were made through your partici-
  ted States; or the District of Columbia; or              the direction of a governmental unit or a            pation in any of the above programs.
  any political subdivision thereof.                       tax-exempt section 501(c)(3) organization.
• An eligible educational organization.
                                                         Educational organization described in sec-             Deductible Debt
Eligible  educational  organization. An  eligi-          tion  170(b)(1)(A)(ii). This  is  an  educational 
ble  educational  organization  is  generally  any       organization that maintains a regular faculty and      If you use the cash method of accounting, you 
accredited public, nonprofit, or proprietary (pri-       curriculum and normally has a regularly enrolled       don't  realize  income  from  the  cancellation  of 
vately owned profit-making) college, university,         body  of  students  in  attendance  at  the  place     debt  if  the  payment  of  the  debt  would  have 
vocational school, or other postsecondary edu-           where it carries on its educational activities.        been a deductible expense. This exception ap-
                                                                                                                plies  before  the  price  reduction  exception  dis-
cational  organization.  Also,  the  organization                The  cancellation  of  your  loan  won’t       cussed next.
must  be  eligible  to  participate  in  a  student  aid !       qualify  for  tax-free  treatment  if  it  was 
program  administered  by  the  U.S.  Department         CAUTION made by an educational organization, a         Example.     In  December  2021,  you  get  ac-
of Education.                                            tax-exempt section 501(c)(3) organization, or a        counting  services  for  your  farm  on  credit.  In 
An eligible educational organization also in-            private education lender (as defined in section        early 2022, you have trouble paying your farm 
cludes  certain  educational  organizations  loca-       140(a)(7) of the Truth in Lending Act) and was         debts and your accountant forgives part of the 
ted outside the United States that are eligible to       canceled  because  of  the  services  you  per-        amount  you  owe  for  the  accounting  services. 
participate  in  a  student  aid  program  adminis-      formed  for  either  such  organization  or  private   How  you  treat  the  canceled  debt  depends  on 
tered by the U.S. Department of Education.               education lender. See Exception, later.                your method of accounting.
       The  educational  organization  should                                                                   • Cash method. You don't include the can-
TIP    be able to tell you if it is an eligible edu-     Section  501(c)(3)  organization.       This  is         celed debt in income because payment of 
       cational organization.                            any  corporation,  community  chest,  fund,  or          the debt would have been deductible as a 
                                                         foundation organized and operated exclusively            business expense in 2022.
                                                         for one or more of the following purposes.
                                                         • Charitable.
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• Accrual method. Unless another exception insolvency exclusion by being an owner of, or a of debt canceled, Sawyer can exclude the en-
or exclusion applies, you must include the partner in a partnership that owns, a grantor tire $5,000 canceled debt from income.
canceled debt in ordinary income because trust or disregarded entity that is insolvent. You When completing the tax return, Sawyer
the expense was deductible in 2021 when must be insolvent to qualify for this exclusion. checks the box on line 1b of Form 982 and en-
you incurred the debt. You were insolvent immediately before the can- ters $5,000 on line 2. Sawyer completes Part II
cellation to the extent that the total of all of your to reduce the tax attributes, as explained under
liabilities was more than the FMV of all of your Reduction of Tax Attributes, later. Sawyer
Price Reduced After assets immediately before the cancellation. For doesn't include any of the $5,000 canceled debt
Purchase purposes of determining insolvency, assets in- on Schedule 1 (Form 1040), line 8c. None of
clude the value of everything you own (includ- the canceled debt is included in income.
If debt you owe the seller for the purchase of ing assets that serve as collateral for debt and
property is reduced by the seller at a time when exempt assets, which are beyond the reach of Example 2—amount of insolvency less
you aren't insolvent and the reduction doesn't your creditors under the law, such as your inter- than canceled debt. The facts are the same
occur in a title 11 bankruptcy case, the reduc- est in a pension plan and the value of your re- as in Example 1, except that Sawyer’s total lia-
tion doesn't result in cancellation of debt in- tirement account). Liabilities include: bilities immediately before the cancellation were
come. However, you must reduce your basis in • The entire amount of recourse debt; $10,000 and the FMV of the total assets imme-
the property by the amount of the reduction of • The amount of nonrecourse debt that isn't diately before the cancellation was $7,000. In
your debt to the seller. The rules that apply to in excess of the FMV of the property that is this case, Sawyer is insolvent to the extent of
bankruptcy and insolvency are explained in Ex- security for the debt; and $3,000 ($10,000 total liabilities minus $7,000
clusions next. • The amount of nonrecourse debt in excess FMV of the total assets) immediately before the
of the FMV of the property subject to the cancellation. Because the amount of the can-
nonrecourse debt, to the extent nonre- celed debt was more than the amount by which
Exclusions course debt in excess of the FMV of the Sawyer was insolvent immediately before the
property subject to the debt is forgiven. cancellation, Sawyer can exclude only $3,000
of the $5,000 canceled debt from income under
After you have applied any exceptions to the You can use the Insolvency Worksheet the insolvency exclusion.
general rule that a canceled debt is included in TIP to help calculate the extent that you Sawyer checks the box on line 1b of Form
your income, there are several reasons why you were insolvent immediately before the 982 and includes $3,000 on line 2. Also, Saw-
might still be able to exclude a canceled debt cancellation. yer completes Part II to reduce the tax attrib-
from your income. These exclusions are ex-
plained next. If a canceled debt is excluded utes, as explained under Reduction of Tax At-
from your income, it is nontaxable. In most ca- Other exclusions must be applied before tributes, later. Additionally, Sawyer must
ses, however, if you exclude canceled debt the insolvency exclusion. This exclusion include $2,000 of canceled debt on Schedule 1
from income under one of these provisions, you doesn't apply to a cancellation of debt that oc- (Form 1040), line 8c (unless another exclusion
must also reduce your tax attributes (certain curs in a title 11 bankruptcy case. It also doesn't applies).
credits, losses, and basis of assets) as ex- apply if the debt is qualified principal residence
plained later under Reduction of Tax Attributes. indebtedness (defined in this section under Example 3—joint debt and separate re-
Qualified Principal Residence Indebtedness, turns. In 2022, Drew and Taylor were released
later) unless you elect to apply the insolvency from their obligation to pay a debt of $10,000 for
Bankruptcy exclusion instead of the qualified principal resi- which they were jointly and severally liable.
dence indebtedness exclusion. None of the exceptions to the general rule that
Debt canceled in a title 11 bankruptcy case isn't canceled debt is included in income apply.
included in your income. A title 11 bankruptcy How to report the insolvency exclusion. To They incurred the debt (originally $12,000) to fi-
case is a case under title 11 of the United show that you are excluding canceled debt from nance Drew's purchase of a $9,000 motorcycle
States Code (including all chapters in title 11 income under the insolvency exclusion, attach and Taylor's purchase of a laptop computer and
such as chapters 7, 11, and 13). You must be a Form 982 to your federal income tax return and software for personal use for $3,000. They each
debtor under the jurisdiction of the court and the check the box on line 1b. On line 2, include the received a 2022 Form 1099-C from the bank
cancellation of the debt must be granted by the smaller of the amount of the debt canceled or showing the entire canceled debt of $10,000 in
court or occur as a result of a plan approved by the amount by which you were insolvent imme- box 2. Based on the use of the loan proceeds,
the court. diately before the cancellation. You can use the they agreed that Drew was responsible for 75%
Insolvency Worksheet to help calculate the ex- of the debt and Taylor was responsible for the
You don’t qualify for the bankruptcy exclu- tent that you were insolvent immediately before remaining 25%. Therefore, Drew's share of the
sion by being an owner of, or a partner in a part- the cancellation. You must also reduce your tax debt is $7,500 (75% of $10,000) and Taylor's
nership that owns, a grantor trust or disregar- attributes in Part II of Form 982, as explained share is $2,500 (25% of $10,000). By complet-
ded entity that is a debtor in a title 11 under Reduction of Tax Attributes, later. ing the Insolvency Worksheet, Drew determines
bankruptcy case. You must be a debtor in a title that, immediately before the cancellation of the
11 bankruptcy case to qualify for this exclusion. Example 1—amount of insolvency more debt, Drew was insolvent to the extent of
than canceled debt. In 2022, Sawyer was re- $5,000 ($15,000 total liabilities minus $10,000
How to report the bankruptcy exclusion. To leased from an obligation to pay a personal FMV of the total assets). Drew can exclude
show that your debt was canceled in a bank- credit card debt in the amount of $5,000. Saw- $5,000 of the $7,500 canceled debt. Taylor
ruptcy case and is excluded from income, at- yer received a 2022 Form 1099-C from the completes a separate Insolvency Worksheet
tach Form 982 to your federal income tax return credit card lender showing the entire amount of and determines Taylor was insolvent to the ex-
and check the box on line 1a. Lines 1b through discharged debt of $5,000 in box 2. None of the tent of $4,000 ($9,000 total liabilities minus
1e don't apply to a cancellation that occurs in a exceptions to the general rule that canceled $5,000 FMV of the total assets). Taylor can ex-
title 11 bankruptcy case. Enter the total amount debt is included in income apply. Sawyer uses clude the entire canceled debt of $2,500.
of debt canceled in your title 11 bankruptcy the Insolvency Worksheet to determine that the When completing the separate tax return,
case on line 2. You must also reduce your tax total liabilities immediately before the cancella- Drew checks the box on line 1b of Form 982
attributes in Part II of Form 982, as explained tion were $15,000 and the FMV of the total as- and enters $5,000 on line 2. Drew completes
under Reduction of Tax Attributes, later. sets immediately before the cancellation was Part II to reduce the tax attributes, as explained
$7,000. This means that immediately before the under Reduction of Tax Attributes, later. Drew
Insolvency cancellation, Sawyer was insolvent to the extent must include the remaining $2,500 (Drew’s
of $8,000 ($15,000 total liabilities minus $7,000 $7,500 share of the canceled debt minus the
FMV of the total assets). Because the amount $5,000 extent to which Drew was insolvent) of
Don't include a canceled debt in income to the by which Sawyer was insolvent immediately be- canceled debt on Schedule 1 (Form 1040),
extent that you were insolvent immediately be- fore the cancellation was more than the amount line 8c (unless another exclusion applies).
fore the cancellation. You don’t qualify for the
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Insolvency Worksheet Keep for Your Records
Date debt was canceled (mm/dd/yy)
Part I. Total liabilities immediately before the cancellation (don't include the same liability in more than one category)
Amount Owed
Liabilities (debts) Immediately Before the
Cancellation
1. Credit card debt $
2. Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can
be on main home, any additional home, or property held for investment or used in a trade or business) $
3. Car and other vehicle loans $
4. Medical bills owed $
5. Student loans $
6. Accrued or past-due mortgage interest $
7. Accrued or past-due real estate taxes $
8. Accrued or past-due utilities (water, gas, electric, etc.) $
9. Accrued or past-due childcare costs $
10. Federal or state income taxes remaining due (for prior tax years) $
11. Judgments $
12. Business debts (including those owed as a sole proprietor or partner) $
13. Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $
14. Other liabilities (debts) not included above $
15. Total liabilities immediately before the cancellation. Add lines 1 through 14. $
Part II. Fair market value (FMV) of assets owned immediately before the cancellation (don't include the FMV of the same asset in more than one
category)
Assets FMV Immediately Before
the Cancellation
16. Cash and bank account balances $
17. Real property, including the value of land (can be main home, any additional home, or property held for
investment or used in a trade or business) $
18. Cars and other vehicles $
19. Computers $
20. Household goods and furnishings (for example, appliances, electronics, furniture, etc.) $
21. Tools $
22. Jewelry $
23. Clothing $
24. Books $
25. Stocks and bonds $
26. Investments in coins, stamps, paintings, or other collectibles $
27. Firearms, sports, photographic, and other hobby equipment $
28. Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $
29. Interest in a pension plan $
30. Interest in education accounts $
31. Cash value of life insurance $
32. Security deposits with landlords, utilities, and others $
33. Interests in partnerships $
34. Value of investment in a business $
35. Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds,
commodity accounts, interests in hedge funds, and options) $
36. Other assets not included above $
37. FMV of total assets immediately before the cancellation. Add lines 16 through 36. $
Part III. Insolvency
38. Amount of insolvency. Subtract line 37 from line 15. If zero or less, you aren't insolvent. $

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When completing the return, Taylor checks For more information about the basis of 2021 tax years, at least 50% of Jordan's total
the box on line 1b of Form 982 and enters property, see Pub. 551. gross receipts were from the trade or business
$2,500 on line 2. Taylor completes Part II to re- of farming. Jordan received a 2022 Form
duce the tax attributes, as explained under Re- Adjusted tax attributes. Adjusted tax at- 1099-C from the qualified lender showing dis-
duction of Tax Attributes, later. Taylor doesn'tt tributes means the sum of the following items. charged debt of $10,000 in box 2. The FMV of
include any of the canceled debt on Schedule 1 1. Any net operating loss (NOL) for 2022 and Jordan's total assets on March 2, 2022 (imme-
(Form 1040), line 8c. None of the canceled debt any NOL carryover to 2022. diately before the cancellation of the credit card
has to be included in income. debt), was $7,000 and Jordan's total liabilities
2. Any net capital loss for 2022 and any capi- at that time were $11,000. Jordan's adjusted tax
tal loss carryover to 2022. attributes (a 2022 NOL) are $7,000 and Jordan
Qualified Farm Indebtedness has $4,000 total adjusted basis in qualified
3. Any passive activity loss carryover from
You can exclude canceled farm debt from in- 2022. property at the beginning of 2023.
Jordan qualifies to exclude $4,000 of the
come on your 2022 return if all of the following 4. Three times the sum of any: canceled debt under the insolvency exclusion
apply.
• The debt was incurred directly in connec- a. General business credit carryover to because Jordan is insolvent to the extent of
tion with your operation of the trade or or from 2022, $4,000 immediately before the cancellation
($11,000 total liabilities minus $7,000 FMV of
business of farming. b. Minimum tax credit available as of the total assets). Jordan must reduce the tax attrib-
• 50% or more of your total gross receipts for beginning of 2023, utes under the insolvency rules before applying
2019, 2020, and 2021 were from the trade
or business of farming. c. Foreign tax credit carryover to or from the rules for qualified farm debt.
• The cancellation was made by a qualified 2022, and Jordan also qualifies to exclude the remain-
ing $6,000 of canceled qualified farm debt. The
person. A qualified person is an individual, d. Passive activity credit carryover from limit on Jordan's exclusion from income of can-
organization, partnership, association, cor- 2022. celed qualified farm debt is $7,000, the sum of:
poration, or other person who is actively
and regularly engaged in the business of Qualified property. This is any property 1. Jordan’s adjusted tax attributes of $3,000
lending money. A qualified person also in- you use or hold for use in your trade or business (the $7,000 NOL minus the $4,000 reduc-
cludes any federal, state, or local govern- or for the production of income. tion of tax attributes required because of
ment or agency or instrumentality of one of the $4,000 exclusion of canceled debt un-
those governments. For example, the U.S. How to report the qualified farm indebted- der the insolvency exclusion), and
Department of Agriculture is a qualified ness exclusion. To show that all or part of
person. A qualified person can't be related your canceled debt is excluded from income 2. Jordan’s total adjusted basis of $4,000 in
to you, can't be the person from whom you because it is qualified farm debt, check the box qualified property held at the beginning of
acquired the property (or a person related on line 1c of Form 982 and attach it to your 2023.
to this person), and can't be a person who Form 1040 or 1040-SR. On line 2 of Form 982, Jordan checks the boxes on lines 1b and 1c
receives a fee due to your investment in include the amount of the qualified farm debt of Form 982 and enters $10,000 on line 2. Jor-
the property (or a person related to this canceled, but not more than the exclusion limit dan completes Part II to reduce the tax attrib-
person). (explained earlier). You must also reduce your utes, as explained under Reduction of Tax At-
tax attributes in Part II of Form 982, as ex- tributes, later. Jordan doesn’t include any of the
For the definition of the term “related person,” plained under Reduction of Tax Attributes, later. canceled debt in income.
see Related persons under At-Risk Amounts in
Pub. 925, Passive Activity and At-Risk Rules. Example 1—only qualified farm indebt- Example 3—no qualified farm indebted-
edness exclusion applies. In 2022, Blake ness exclusion when insolvent to the extent
Other exclusions must be applied before was released from an obligation to pay a of canceled debt. The facts are the same as
the qualified farm indebtedness exclusion. $10,000 debt that was incurred directly in con- in Example 2, except that immediately before
This exclusion doesn't apply to a cancellation of nection with the trade or business of farming. the cancellation, Jordan was insolvent to the
debt in a title 11 bankruptcy case or to the ex- Blake received a Form 1099-C from the quali- extent of the full $10,000 canceled debt. Be-
tent you were insolvent immediately before the fied lender showing discharged debt of $10,000 cause the exclusion for qualified farm debt
cancellation. If qualified farm debt is canceled in in box 2. For 2019, 2020, and 2021 tax years, at doesn't apply to the extent that Jordan’s insol-
a title 11 case, you must apply the bankruptcy least 50% of Blake's total gross receipts were vency (immediately before the cancellation)
exclusion rather than the exclusion for canceled from the trade or business of farming. Blake's was equal to the full amount of the canceled
qualified farm debt. If you were insolvent imme- adjusted tax attributes are $5,000 and Blake debt, Jordan checks only the box on line 1b of
diately before the cancellation of qualified farm has $3,000 total adjusted basis in qualified Form 982 and enters $10,000 on line 2. Jordan
debt, you must apply the insolvency exclusion property at the beginning of 2023. Blake had no completes Part II to reduce the tax attributes
before applying the exclusion for canceled other debt canceled during 2022 and no other based on the insolvency exclusion, as ex-
qualified farm debt. exception or exclusion relating to canceled debt plained under Reduction of Tax Attributes, later.
income applies. Jordan doesn't include any of the canceled debt
Exclusion limit. The amount of canceled Blake can exclude $8,000 ($5,000 of adjus- in income.
qualified farm debt you can exclude from in- ted tax attributes plus $3,000 total adjusted ba-
come under this exclusion is limited. It can't be sis in qualified property at the beginning of
more than the sum of: 2023) of the $10,000 canceled debt from in- Qualified Real Property
1. Your adjusted tax attributes, and come. Blake checks the box on line 1c of Form Business Indebtedness
982 and enters $8,000 on line 2. Also, Blake
2. The total adjusted basis of qualified prop- completes Part II to reduce the tax attributes, as You can elect to exclude canceled qualified real
erty you held at the beginning of 2023. explained under Reduction of Tax Attributes, property business indebtedness from income.
If you excluded canceled debt under the insol- later. The remaining $2,000 of canceled quali- Qualified real property business indebtedness
vency exclusion, the adjusted basis of any fied farm debt is included in Blake's income on is debt (other than qualified farm debt) that
qualified property and adjusted tax attributes Schedule F (Form 1040), line 8. meets all of the following conditions.
are determined after any reduction of tax attrib-
utes required under the insolvency exclusion. Example 2—both insolvency and quali- 1. It was incurred or assumed in connection
Any canceled qualified farm debt that is fied farm indebtedness exclusions apply. with real property used in a trade or busi-
more than this limit must be included in your in- On March 2, 2022, Jordan was released from ness. Real property used in a trade or
come. an obligation to pay a $10,000 business credit business doesn’t include real property de-
card debt that was used directly in connection veloped and held primarily for sale to cus-
with a farming business. For 2019, 2020, and tomers in the ordinary course of business.

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2. It is secured by that real property. As long real property acquired in contemplation of Charlie had no tax attributes other than the ba-
as certain other requirements are met, in- the cancellation). sis to reduce and didn't qualify for any excep-
debtedness that is secured by 100% of the tion or exclusion other than the qualified real
ownership interest in a disregarded entity Note. When figuring the first limit in (1) property business debt exclusion.
holding real property will be treated as in- above, reduce the FMV of the business real Charlie elects to apply the qualified real
debtedness that is secured by real prop- property securing the debt (immediately before property business debt exclusion to the can-
erty. For more information, and for the re- the cancellation) by the outstanding principal celed debt. The amount of canceled qualified
quirements that must be met, see amount of any other qualified real property busi- real property business debt that Charlie can ex-
Revenue Procedure 2014-20, available at ness debt secured by that property (immedi- clude from income is limited. The amount Char-
IRS.gov/irb/2014-9_IRB#RP-2014-20. ately before the cancellation). When figuring the lie can exclude can’t be more than either:
second (overall) limit in (2) above, use the ad-
3. It was incurred or assumed: justed basis of the depreciable real property af- 1. $20,000 (the excess of the $185,000 out-
a. Before 1993; or ter any reductions in basis required because of standing principal amount of Charlie’s
the exclusion of debt canceled under the bank- qualified real property business debt im-
b. After 1992, if the debt is either (i) ruptcy, insolvency, or farm debt provisions de- mediately before the cancellation over the
qualified acquisition indebtedness scribed in this publication or because of other $165,000 FMV of the business real prop-
(defined next), or (ii) debt incurred to basis adjustments that may apply to that depre- erty securing the debt), or
refinance qualified real property busi- ciable property. 2. $210,000 (the total adjusted basis of the
ness debt incurred or assumed before depreciable real property Charlie held im-
1993 (but only to the extent the For more information about the basis of
amount of such debt doesn't exceed property, see Pub. 551. mediately before the cancellation).
the amount of debt being refinanced). How to elect the qualified real property .
4. It is debt to which you elect to apply these business debt exclusion. You must make an Thus, Charlie can exclude the entire
rules. election to exclude canceled qualified real prop- $20,000 of canceled qualified real property
erty business debt from gross income. The business debt from income. Charlie checks the
Residential rental property generally election must be made on a timely filed federal box on line 1d of Form 982 and enters $20,000
TIP qualifies as real property used in a income tax return (including extensions) for on line 2. Charlie must also use line 4 of Form
trade or business unless you also use 2022 and can be revoked only with IRS con- 982 to reduce the basis in depreciable real
the dwelling as a home. For more information, sent. The election is made by completing Form property by the $20,000 of canceled qualified
see Dwelling Unit Used as a Home in Pub. 527. 982 in accordance with its instructions. Attach real property business debt excluded from in-
Form 982 to your federal income tax return for come as explained under Reduction of Tax At-
Definition of qualified acquisition indebted- 2022 and check the box on line 1d. Include the tributes, later.
ness. Qualified acquisition indebtedness is: amount of canceled qualified real property busi-
• Debt incurred or assumed to acquire, con- ness debt (but not more than the amount of the Qualified Principal
struct, reconstruct, or substantially improve exclusion limit, explained earlier) on line 2 of Residence Indebtedness
real property that is used in a trade or busi- Form 982. You must also reduce your tax attrib-
ness and secures the debt; or utes in Part II of Form 982, as explained under
• Debt resulting from the refinancing of quali- Reduction of Tax Attributes, later. Qualified principal residence indebtedness is
fied acquisition indebtedness, to the extent If you timely filed your tax return without any mortgage you took out to buy, build, or sub-
the amount of the debt doesn't exceed the making this election, you can still make the stantially improve your main home. It must also
amount of debt being refinanced. election by filing an amended return within 6 be secured by your main home. Qualified princi-
months of the due date of the return (excluding pal residence indebtedness also includes any
Other exclusions must be applied before extensions). Enter “Filed pursuant to section debt secured by your main home that you used
the qualified real property business indebt- 301.9100-2” on the amended return and file it at to refinance a mortgage you took out to buy,
edness exclusion. This exclusion doesn't ap- the same place you filed the original return. build, or substantially improve your main home,
ply to a cancellation of debt in a title 11 bank- but only up to the amount of the old mortgage
ruptcy case or to the extent you were insolvent Example—full qualified real property principal just before the refinancing.
immediately before the cancellation. If qualified business indebtedness exclusion. In 2016,
real property business debt is canceled in a title Charlie bought a retail store for use in a busi-
11 bankruptcy case, you must apply the bank- ness that Charlie operated as a sole proprietor- Example 1—qualified principal resi-
ruptcy exclusion rather than the exclusion for ship. Charlie made a $20,000 down payment dence indebtedness amount after refi-
canceled qualified real property business debt. and financed the remaining $200,000 of the nance. In 2021, Cameron bought a main home
If you were insolvent immediately before the purchase price with a bank loan. The bank loan for $315,000. Cameron took out a $300,000
cancellation of qualified real property business was a recourse loan and was secured by the mortgage loan to buy the home and made a
debt, you must apply the insolvency exclusion property. Charlie used the property in the busi- down payment of $15,000. The loan was se-
before applying the exclusion for canceled ness continuously since it was purchased. cured by the home. Later that year, Cameron
qualified real property business debt. Charlie had no other debt secured by that de- took out a second mortgage loan in the amount
preciable real property. In addition to the retail of $50,000 that was used to add a garage to the
Exclusion limit. The amount of canceled store, Charlie owned depreciable equipment home.
qualified real property business debt you can and furniture with an adjusted basis of $50,000. In 2022, when the outstanding principal of
exclude from income under this exclusion has Charlie's business encountered financial dif- the first and second mortgage loans was
two limits. The amount you can exclude can't be ficulties in 2022. On September 21, 2022, the $325,000, Cameron refinanced the two loans
more than either: bank financing the retail store loan entered into into one loan in the amount of $400,000. The
1. The excess (if any) of the outstanding prin- a workout agreement with Charlie under which FMV of the home at the time of the refinancing
cipal amount of the qualified real property it canceled $20,000 of the debt. Immediately was $430,000. Cameron used the additional
business debt (immediately before the before the cancellation, the outstanding princi- $75,000 debt proceeds ($400,000 new mort-
cancellation) over the FMV (immediately pal balance on the retail store loan was gage loan minus $325,000 outstanding princi-
before the cancellation) of the business $185,000, the FMV of the store was $165,000, pal balances of the first and second mortgage
real property securing the debt, or and the adjusted basis was $210,000 loans immediately before the refinancing) to
($220,000 cost minus $10,000 accumulated de- pay off personal credit cards and to pay college
2. The total adjusted basis of depreciable preciation). tuition for Cameron’s daughter.
real property you held immediately before The bank sent Charlie a 2022 Form 1099-C After the refinancing, Cameron's qualified
the cancellation of the qualified real prop- showing discharged debt of $20,000 in box 2. principal residence indebtedness is $325,000
erty business debt (other than depreciable because the $400,000 debt resulting from the
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refinancing is qualified principal residence in- Example 3—ordering rule on cancella- qualified principal residence indebtedness ex-
debtedness only to the extent it isn't more than tion of nonqualified principal residence cluded from income. Enter the amount of the
the old mortgage principal just before the refi- debt. Kit incurred recourse debt of $800,000 basis reduction on line 10b of Form 982.
nancing (the $325,000 of outstanding principal when Kit bought a main home for $880,000.
on Cameron's first and second mortgages, When the FMV of the property was $1 million, For more details on determining the basis of
which both qualified as principal residence in- Kit refinanced the debt for $850,000. At the time your main home, see Pub. 523.
debtedness). of the refinancing, the principal balance of the
original mortgage loan was $740,000. Kit used Bankruptcy and Insolvency
Example 2—refinancing home equity the $110,000 obtained from the refinancing
loan used for other purposes. In 2021, Quin ($850,000 minus $740,000) to pay off credit No tax attributes other than basis of per-
acquired a main home for $200,000, subject to cards and to buy a new car. sonal-use property. If the canceled debt you
a mortgage of $175,000. Later that year, Quin About 2 years after the refinancing, Kit lost a are excluding isn't excluded as qualified princi-
took out a home equity loan for $10,000, se- job and was unable to get another job paying a pal residence indebtedness and you have no
cured by the main home, which Quin used to comparable salary. Kit's home had declined in tax attributes other than the adjusted basis of
pay off personal credit cards. value to between $600,000 and $650,000. personal-use property (see the list of seven tax
In 2022, when the outstanding principal on Based on Kit's circumstances, the lender attributes, later), you must reduce the basis of
the mortgage was $170,000, and the outstand- agreed to allow a short sale of the property for the personal-use property you held at the be-
ing principal on the home equity loan was $620,000 and to cancel the remaining $115,000 ginning of 2023 (in proportion to adjusted ba-
$9,000, Quin refinanced the two loans into one of the outstanding $735,000 debt. Under the or- sis). Personal-use property is any property that
loan in the amount of $200,000. The FMV of the dering rule, Kit can exclude only $5,000 of the isn't used in your trade or business or held for
home at the time of refinancing was $210,000. canceled debt from income under the exclusion investment (such as your home, home furnish-
Quin used the additional $21,000 ($200,000 for canceled qualified principal residence in- ings, and car). Include on line 10a of Form 982
new mortgage loan minus $179,000 outstand- debtedness ($115,000 canceled debt minus the the smallest of:
ing principal balances on the mortgage and $110,000 amount of the debt that wasn't quali-
home equity loan) to cover medical expenses. fied principal residence indebtedness). Kit must 1. The basis of your personal-use property
After refinancing, Quin's qualified principal include the remaining $110,000 of canceled held at the beginning of 2023,
residence indebtedness is $170,000 because debt in income on Schedule 1 (Form 1040), 2. The amount of canceled nonbusiness debt
the debt resulting from the refinancing is quali- line 8c (unless another exclusion applies). (other than qualified principal residence in-
fied principal residence indebtedness only to debtedness) that you are excluding from
the extent it refinances debt that had been se- How to report the qualified principal resi- income on line 2 of Form 982, or
cured by the main home and was used to buy, dence indebtedness exclusion. To show
build, or substantially improve the main home. that all or part of your canceled debt is excluded 3. The excess of the total basis of the prop-
from income because it is qualified principal erty and the amount of money you held im-
Main home. Your main home is the one in residence indebtedness, attach Form 982 to mediately after the cancellation over your
which you live most of the time. You can have your federal income tax return and check the total liabilities immediately after the can-
only one main home at any one time. box on line 1e. On line 2 of Form 982, include cellation.
the amount of canceled qualified principal resi-
Other exclusions must be applied before dence indebtedness, but not more than the For more information about the basis of
the qualified principal residence indebted- amount of the exclusion limit (explained earlier). property, see Pub. 551.
ness exclusion. This exclusion doesn't apply If you continue to own your home after a cancel- Example. In 2021, Morgan bought a car for
to a cancellation of debt in a title 11 bankruptcy lation of qualified principal residence indebted- personal use. The cost of the car was $12,000.
case. If qualified principal residence indebted- ness, you must reduce your basis in the home, Morgan put down $2,000 and took out a loan of
ness is canceled in a title 11 bankruptcy case, as explained under Reduction of Tax Attributes $10,000 to buy the car. The loan was a re-
you must apply the bankruptcy exclusion rather next. course loan, meaning that Morgan was person-
than the exclusion for qualified principal resi-
dence indebtedness. If you were insolvent im- ally liable for the full amount of the debt.
On December 7, 2022, when the balance of
mediately before the cancellation, you can elect Reduction of Tax the loan was $8,500, the lender repossessed
to apply the insolvency exclusion (as explained
under Insolvency, earlier) instead of applying Attributes and sold the car because Morgan had stopped
the qualified principal residence indebtedness making payments on the loan. The FMV of the
exclusion. To do this, check the box on line 1b If you exclude canceled debt from income, you car was $7,000 at the time the lender repos-
of Form 982 instead of the box on line 1e. must reduce certain tax attributes (but not be- sessed and sold it. The lender applied the
low zero) by the amount excluded. Use Part II of $7,000 it received on the sale of the car against
Exclusion limit. The maximum amount you Form 982 to reduce your tax attributes. The or- Morgan's loan and forgave the remaining loan
can treat as qualified principal residence indebt- der in which the tax attributes are reduced de- balance of $1,500 ($8,500 outstanding balance
edness is $750,000 ($375,000 if married filing pends on the reason the canceled debt was ex- immediately before the repossession minus the
separately). You can't exclude canceled quali- cluded from income. If the total amount of $7,000 FMV of the car).
fied principal residence indebtedness from in- canceled debt excluded from income (line 2 of Morgan's only other assets at the time of the
come if the cancellation was for services per- Form 982) was more than your total tax attrib- cancellation are the furniture in Morgan’s apart-
formed for the lender or on account of any other utes, the total reduction of tax attributes in Part ment which has a basis of $5,000 and an FMV
factor not directly related to a decline in the II of Form 982 will be less than the amount on of $3,000; jewelry with a basis of $500 and an
value of your home or to your financial condi- line 2. FMV of $1,000; and a $600 balance in a sav-
tion. ings account. Thus, the FMV of Morgan's total
assets immediately before the cancellation was
Ordering rule. If only a part of a loan is quali- Qualified Principal $11,600 ($7,000 car plus $3,000 furniture plus
fied principal residence indebtedness, the ex- Residence Indebtedness $1,000 jewelry plus $600 savings). Morgan also
clusion applies only to the extent the amount had an outstanding student loan balance of
canceled is more than the amount of the loan If you exclude canceled qualified principal resi- $6,000 immediately before the cancellation,
(immediately before the cancellation) that isn’t dence indebtedness from income and you con- bringing the total liabilities at that time to
qualified principal residence indebtedness. The tinue to own the home after the cancellation, $14,500 ($8,500 balance on car loan plus
remaining part of the loan may qualify for an- you must reduce the basis of the home (but not $6,000 student loan balance). Other than the
other exclusion. below zero) by the amount of the canceled car, which was repossessed, Morgan held all of
these assets at the beginning of 2023. The FMV
and basis of the assets remained the same at
the beginning of 2023.
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Morgan received a 2022 Form 1099-C Instructions for Form 3800. Reduce the 2022. Reduce the carryover by 33 / cents 1 3
showing $1,500 in box 2 (amount of debt that carryover by 33 / cents for each dollar of 1 3 for each dollar of excluded canceled debt.
was canceled) and $7,000 in box 7 (FMV of the excluded canceled debt.
Election to reduce the basis of depreciable
property). Morgan can exclude all $1,500 of 3. Minimum tax credit. Reduce the mini- property before reducing other tax attrib-
canceled debt from income because at the time mum tax credit available at the beginning utes. You can elect to reduce the basis of de-
of the cancellation, Morgan was insolvent to the of 2023. Reduce the credit by 33 / cents 1 3
preciable property you held at the beginning of
extent of $2,900 ($14,500 of total liabilities im- for each dollar of excluded canceled debt. 2023 before reducing other tax attributes. You
mediately before the cancellation minus
$11,600 FMV of total assets at that time). 4. Net capital loss and capital loss carry- can reduce the basis of this property by all or
Morgan checks box 1b on Form 982 and en- overs. First reduce any 2022 net capital part of the canceled debt. Basis of property is
ters $1,500 on line 2. Morgan enters $100 on loss and then any capital loss carryover to reduced in the following order.
line 10a, the smallest of: 2022 (after taking into account any 1. Depreciable real property used in your
amount used to reduce 2022 taxable in-
1. The $5,500 basis of Morgan’s per- come) in the order of the tax years from trade or business or held for investment
sonal-use property held at the beginning which the carryovers arose, starting with that secured the canceled debt.
of 2023 ($5,000 furniture plus $500 jew- the earliest year. Reduce the net capital 2. Depreciable personal property used in
elry), loss or carryover by one dollar for each your trade or business or held for invest-
2. The $1,500 nonbusiness debt Morgan is dollar of excluded canceled debt. ment that secured the canceled debt.
excluding from income on line 2 of Form 5. Basis. Reduce the basis of the property 3. Other depreciable property used in your
982, or you hold at the beginning of 2023 in the trade or business or held for investment.
3. The $100 excess of the total basis of the following order (and, within each category,
property and the amount of money Mor- in proportion to adjusted basis). 4. Real property held primarily for sale to
customers if you elect to treat it as if it
gan held immediately after the cancella- a. Real property used in your trade or were depreciable property on Form 982.
tion over the total liabilities at that time business or held for investment (other
($5,500 basis of property held immediately than real property held for sale to cus- Basis reduction is limited to the total adjus-
after the cancellation plus $600 savings tomers in the ordinary course of busi- ted basis of all your depreciable property. De-
minus $6,000 student loan). ness) if it secured the canceled debt. preciable property for this purpose means any
property subject to depreciation or amortization,
Morgan must reduce (by one dollar for each b. Personal property used in your trade but only if a reduction of basis will reduce the
dollar of excluded canceled debt) the basis in or business or held for investment depreciation or amortization otherwise allowa-
each item of property held at the beginning of (other than inventory and accounts ble for the period immediately following the ba-
2023 in proportion to the total adjusted basis in and notes receivable) if it secured the sis reduction. If the amount of canceled debt
all the property. The total reduction, however, canceled debt. excluded from income is more than the total ba-
can't be more than (3) above—the $100 excess sis in depreciable property, you must use the
of the total adjusted basis and the money held c. Any other property used in your trade
after the cancellation over the total liabilities af- or business or held for investment excess to reduce the other tax attributes in the
ter the cancellation. See the basis attribute un- (other than inventory, accounts re- order described earlier under All other tax attrib-
der All other tax attributes next. ceivable, notes receivable, and real utes. In figuring the limit on the basis reduction
Thus, Morgan reduces the basis as follows. property held for sale to customers in in (5), Basis, use the remaining adjusted basis
the ordinary course of business). of your properties after making this election.
1. The furniture's basis is 91% of the total ad- See Form 982 for information on how to make
justed basis ($5,000 divided by $5,500), d. Inventory, accounts receivable, notes this election. The election can be revoked only
so Morgan reduces it by $91 (the $100 ex- receivable, and real property held pri- with IRS consent.
cess in (3) multiplied by 0.91). marily for sale to customers in the or-
dinary course of business. Recapture of basis reductions. If you reduce
2. The jewelry’s basis is 9% of the total ad- the basis of property under these provisions
justed basis ($500 divided by $5,500), so e. Personal-use property (property not
Morgan reduces it by $9 (the $100 excess used in your trade or business nor and later sell or otherwise dispose of the prop-
in (3) multiplied by 0.09). held for investment). erty at a gain, the part of the gain due to this ba-
sis reduction is taxable as ordinary income un-
Reduce the basis by one dollar for der the depreciation recapture provisions. Treat
All other tax attributes. If the canceled debt each dollar of excluded canceled debt. any property that isn't section 1245 or section
is excluded by reason of the bankruptcy or in- However, the reduction can't be more than 1250 property as section 1245 property. For
solvency exclusion, you must use the excluded the excess of the total basis of the prop- section 1250 property, determine the deprecia-
debt to reduce the following tax attributes (but erty and the amount of money you held im- tion adjustments that would have resulted under
not below zero) in the order listed unless you mediately after the debt cancellation over the straight line method as if there were no ba-
elect to reduce the basis of depreciable prop- your total liabilities immediately after the sis reduction for debt cancellation. See Pub.
erty first, as explained later. Reduce your tax at- cancellation. 544, or Pub. 225, for more details on sections
tributes after you figure your income tax liability For allocation rules that apply to basis 1245 and 1250 property and the recapture of
for 2022. reductions for multiple canceled debts, gain as ordinary income.
1. Net operating loss (NOL). First reduce see Regulations section 1.1017-1(b)(2).
any 2022 NOL and then reduce any NOL Also see Election to reduce the basis of
carryover to 2022 (after taking into ac- depreciable property before reducing Qualified Farm Indebtedness
count any amount used to reduce 2022 other tax attributes, later.
If you exclude canceled debt from income un-
taxable income) in the order of the tax 6. Passive activity loss and credit carry- der both the insolvency exclusion and the ex-
years from which the carryovers arose, overs. Reduce the passive activity loss clusion for qualified farm indebtedness, you
starting with the earliest year. Reduce the and credit carryovers from 2022. Reduce must first reduce your tax attributes by the
NOL or carryover by one dollar for each the loss carryover by one dollar for each amount excluded under the insolvency exclu-
dollar of excluded canceled debt. dollar of excluded canceled debt. Reduce sion. Then, reduce your remaining tax attributes
2. General business credit carryover. Re- the credit carryover by 33 / cents for each 1 3
(but not below zero) by the amount of canceled
duce the credit carryover to or from 2022. dollar of excluded canceled debt. debt that qualifies for the farm debt exclusion.
Reduce the credit carryovers to 2022 in 7. Foreign tax credit. Reduce the credit
the order in which they are taken into ac- carryover to or from 2022. Reduce the In most cases, when reducing your tax at-
count for 2022. For more information on credit carryovers to 2022 in the order in tributes for canceled qualified farm indebted-
the credit ordering rules for 2022, see the which they are taken into account for ness excluded from income, reduce them in the
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same order explained under Bankruptcy and In- attributes. Under that election, Charlie must first cancellation) of that qualified real property,
solvency, earlier. However, don't follow the reduce the basis in the depreciable real prop- which secured the debt), or
rules in item (5), Basis. Instead, reduce only the erty used in the trade or business that secured 2. $145,000 (the total adjusted basis of de-
basis of qualified property. Qualified property is the canceled debt. After the basis reduction, the preciable real property held immediately
any property you use or hold for use in your adjusted basis in that property is $198,000 before the cancellation of debt).
trade or business or for the production of in- ($210,000 adjusted basis before entering into
come. Reduce the basis of qualified property in the workout agreement minus $12,000 of can- Since both limits ($14,000 and $145,000)
the following order. celed debt excluded from income under the in- are more than the remaining $4,000 of can-
1. Depreciable qualified property. You can solvency exclusion). celed debt, Jordan can also exclude the re-
elect on Form 982 to treat real property Charlie may be able to exclude the remain- maining $4,000 of canceled debt.
held primarily for sale to customers as if it ing $8,000 of canceled debt from income under Jordan checks the boxes on lines 1b and 1d
were depreciable property. the exclusion for qualified real property busi- of Form 982 and enters $14,000 on line 2. Jor-
ness indebtedness, if Charlie elects to apply it. dan completes Part II of Form 982 to reduce the
2. Land that is qualified property and is used The amount Charlie can exclude is limited. It basis of depreciable real property and the 2022
or held for use in your farming business. can’t be more than: NOL by entering $4,000 on line 4 and $10,000
3. Other qualified property. 1. $20,000 (the excess of the $185,000 out- on line 6. None of the canceled debt is included
standing principal amount of Charlie’s in income.
qualified real property business debt (im-
Qualified Real Property mediately before the cancellation) over the
Business Indebtedness $165,000 FMV (immediately before the
cancellation) of the qualified real property,
If you make an election to exclude canceled which secured the debt), or
qualified real property business debt from in-
come, you must reduce the basis of your depre- 2. $198,000 (the total adjusted basis of de-
ciable real property (but not below zero) by the preciable real property Charlie held imme-
amount of canceled qualified real property busi- diately before the cancellation determined
ness debt excluded from income. The basis re- after reductions for accumulated deprecia-
duction is made at the beginning of 2023. How- tion and canceled debt excluded under
ever, if you dispose of your depreciable real the insolvency exclusion ($220,000 minus 2.
property before the beginning of 2023, you $10,000 minus $12,000)).
must reduce its basis (but not below zero) im- Since both limits are more than the $8,000
mediately before the disposition. Enter the of remaining canceled debt ($20,000 minus Foreclosures
amount of the basis reduction on line 4 of Form $12,000), Charlie can exclude $8,000 under the
982. qualified real property business indebtedness and
exclusion.
Example 1—qualified real property busi- Charlie checks the boxes on lines 1b and 1d
ness indebtedness and insolvency with re- of Form 982. Charlie completes Part II of Form Repossessions
duction in basis. In 2017, Charlie bought a re- 982 to reduce the basis in the depreciable real
tail store for use in a business operated as a property by $20,000, the amount of the can- If you don't make payments you owe on a loan
sole proprietorship. Charlie made a $20,000 celed debt excluded from income. Charlie en- secured by property, the lender may foreclose
down payment and financed the remaining ters $8,000 on line 4 and $12,000 on line 5. on the loan or repossess the property. The fore-
$200,000 of the purchase price with a bank closure or repossession is treated as a sale
loan. The bank loan was a recourse loan and Example 2—qualified real property busi- from which you may realize gain or loss. This is
was secured by the property. Charlie used the ness indebtedness with insolvency and re- true even if you voluntarily return the property to
property in the business continuously since it duction in NOL. Jordan owns depreciable real the lender. If the outstanding loan balance was
was purchased and had no other debt secured property used in a retail business. Jordan’s ad- more than the FMV of the property and the
by that depreciable real property. In addition to justed basis in the property is $145,000. The lender cancels all or part of the remaining loan
the retail store, Charlie owned depreciable FMV of the property is $120,000. The property balance, you may also realize ordinary income
equipment and furniture with an adjusted basis is subject to $134,000 of recourse debt which is from the cancellation of debt. You must report
of $50,000. Charlie’s tax attributes included the secured by the property. Jordan had no other this income on your return unless certain excep-
basis of depreciable property, an NOL, and a debt secured by that depreciable real property. tions or exclusions apply. See chapter 1 for
capital loss carryover to 2022. Jordan also had a $15,000 NOL in 2022. more details.
Charlie's business encountered financial dif- During 2022, Jordan entered into a workout
ficulties in 2022. On September 21, 2022, the agreement with the lender under which the Borrower's gain or loss. You figure and re-
bank financing the retail store loan entered into lender canceled $14,000 of the debt on the real port gain or loss from a foreclosure or reposses-
a workout agreement with Charlie under which property used in the business. Immediately be- sion in the same way as gain or loss from a
it canceled $20,000 of the principal amount of fore the cancellation, Jordan was insolvent to sale. The gain is the difference between the
the debt. Immediately before the bank entered the extent of $10,000. Jordan excludes $10,000 amount realized and your adjusted basis in the
into the workout agreement, Charlie was insol- of the canceled debt from income under the in- transferred property (amount realized minus ad-
vent to the extent of $12,000. At that time, the solvency exclusion. As a result of that exclu- justed basis). The loss is the difference be-
outstanding principal balance on the retail store sion, Jordan reduced the NOL by $10,000. tween your adjusted basis in the transferred
loan was $185,000, the FMV of the store was Jordan may be able to exclude the remain- property and the amount realized (adjusted ba-
$165,000, and the adjusted basis was ing $4,000 of canceled debt from income under sis minus amount realized). For more informa-
$210,000 ($220,000 cost minus $10,000 accu- the qualified real property business indebted- tion on figuring gain or loss from the sale of
mulated depreciation). The bank sent Charlie a ness exclusion, if Jordan elects to apply it. The property, see Gain or Loss From Sales and Ex-
2022 Form 1099-C showing canceled debt of amount Jordan can exclude is limited. It can't changes in Pub. 544.
$20,000 in box 2. be more than:
Charlie must apply the insolvency exclusion You can use Table 1-1 to figure your
before applying the exclusion for canceled 1. $14,000 (the excess of the $134,000 out- TIP ordinary income from the cancellation
qualified real property business indebtedness. standing principal amount of Jordan’s of debt and your gain or loss from a
Under the insolvency exclusion rules, Charlie qualified real property business debt (im- foreclosure or repossession.
can exclude $12,000 of the canceled debt from mediately before the cancellation) over the
income. Charlie elects to reduce the basis of $120,000 FMV (immediately before the Amount realized and ordinary income
depreciable property before reducing other tax on a recourse debt. If you are personally

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Table 1-1. Worksheet for Foreclosures and cancellation of the remaining balance on the
Repossessions Keep for Your Records loan in November, Avery also has ordinary in-
come from cancellation of debt in the amount of
Part 1. Complete Part 1 only if you were personally liable for the debt (even if none of the debt was $1,000 (the remaining balance on the $10,000
canceled). Otherwise, go to Part 2. loan after the $9,000 amount satisfied by the
FMV of the repossessed car). Avery must re-
1. Enter the amount of outstanding debt immediately before the transfer of port the $1,000 on the return unless one of the
property reduced by any amount for which you remain personally liable exceptions or exclusions described in chapter 1
immediately after the transfer of property . . . . . . . . . . . . . . . . . . . . . . . . . . applies.
2. Enter the fair market value of the transferred property . . . . . . . . . . . . . . . . . .
3. Ordinary income from the cancellation of debt upon foreclosure or
repossession.* Subtract line 2 from line 1. If less than zero, enter zero. Next, Amount realized on a nonrecourse debt.
go to Part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . If you aren't personally liable for repaying the
debt secured by the transferred property, the
Part 2. Gain or loss from foreclosure or repossession. amount you realize includes the full amount of
the outstanding debt immediately before the
4. Enter the smaller of line 1 or line 2. If you didn't complete Part 1 (because you transfer. This is true even if the FMV of the
weren't personally liable for the debt), enter the amount of outstanding debt property is less than the outstanding debt im-
immediately before the transfer of property . . . . . . . . . . . . . . . . . . . . . . . . . mediately before the transfer.
5. Enter any proceeds you received from the foreclosure sale . . . . . . . . . . . . . .
6. Add line 4 and line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Example 1. Ryan paid $200,000 for a
7. Enter the adjusted basis of the transferred property . . . . . . . . . . . . . . . . . . . home. Ryan made a $15,000 down payment
and borrowed the remaining $185,000 from a
8. Gain or loss from foreclosure or repossession. Subtract line 7 bank. Ryan isn't personally liable for the loan,
from line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . but the loan was secured by a mortgage on the
* The income may not be taxable. See chapter 1 for more details. house.
The bank foreclosed on the mortgage be-
liable for the debt, the amount realized on the minus $8,000). Ryan is able to exclude the cause Ryan stopped making payments. When
foreclosure or repossession includes the $2,000 of canceled debt from income under the the bank foreclosed on the mortgage, the bal-
smaller of: qualified principal residence indebtedness rules ance due was $180,000, the FMV of the house
1. The outstanding debt immediately before discussed earlier. was $170,000, and Ryan's adjusted basis was
the transfer reduced by any amount for Ryan must also determine the gain or loss $175,000 due to a casualty loss that was de-
which you remain personally liable imme- from the foreclosure. In this case, the amount ducted.
diately after the transfer, or realized is $170,000. This is the smaller of: The amount Ryan realized on the foreclo-
sure is $180,000, the outstanding debt immedi-
2. The FMV of the transferred property. 1. $172,000 (the $180,000 of outstanding ately before the foreclosure. Ryan figures the
debt immediately before the transfer mi- gain or loss by comparing the $180,000 amount
The amount realized also includes any pro- nus $8,000 for which Ryan remains per- realized with the $175,000 adjusted basis. Ryan
ceeds you received from the foreclosure sale. If sonally liable immediately after the trans- has a $5,000 realized gain. See Pub. 523, to
the FMV of the transferred property is less than fer), or figure and report any taxable amount.
the total outstanding debt immediately before 2. $170,000 (the FMV of the house). Example 2. Avery bought a new car for
the transfer reduced by any amount for which
you remain personally liable immediately after Ryan figures the gain or loss on the foreclo- $15,000. Avery made a $2,000 down payment
the transfer, the difference is ordinary income sure by comparing the $170,000 amount real- and borrowed the remaining $13,000 from the
from the cancellation of debt. You must report ized with the $175,000 adjusted basis. Ryan dealer's credit company. Avery isn't personally
this income on your return unless certain excep- has a $5,000 nondeductible loss. liable for the loan (nonrecourse), but pledged
tions or exclusions apply. See chapter 1 for the new car as security for the loan.
more details. Example 2. Avery bought a new car for On August 3, 2022, the credit company re-
$15,000. Avery made a $2,000 down payment possessed the car because Avery had stopped
Example 1. In 2021, Ryan paid $200,000 and borrowed the remaining $13,000 from the making loan payments. The balance due after
for a home. Ryan made a $15,000 down pay- dealer's credit company. Avery is personally lia- taking into account the payments Avery made
ment and borrowed the remaining $185,000 ble for the loan (recourse debt) and the car is was $10,000. The FMV of the car when it was
from a bank. Ryan is personally liable for the pledged as security for the loan. On August 3, repossessed was $9,000.
mortgage loan and the house secures the loan. 2022, the credit company repossessed the car The amount Avery realized on the reposses-
In 2022, the bank foreclosed on the mortgage because Avery had stopped making loan pay- sion is $10,000. That is the outstanding amount
because Ryan stopped making payments. ments. The balance due after taking into ac- of debt immediately before the repossession,
When the bank foreclosed the mortgage, the count the payments Avery made was $10,000. even though the FMV of the car is less than
balance due was $180,000, the FMV of the The FMV of the car when it was repossessed $10,000. Avery figures the gain or loss on the
house was $170,000, and Ryan's adjusted ba- was $9,000. On November 16, 2022, the credit repossession by comparing the $10,000
sis was $175,000 due to a casualty loss that company forgave the remaining $1,000 balance amount realized with the $15,000 adjusted ba-
was deducted. At the time of the foreclosure, on the loan due to insufficient assets. sis. Avery has a $5,000 nondeductible loss.
the bank forgave $2,000 of the $10,000 debt in In this case, the amount Avery realizes is
excess of the FMV ($180,000 minus $170,000). $9,000. This is the smaller of: Forms 1099-A and 1099-C. A lender who ac-
quires an interest in your property in a foreclo-
Ryan remained personally liable for the $8,000 1. $9,000 (the $10,000 outstanding debt im- sure or repossession should send you Form
balance. mediately before the repossession minus 1099-A, Acquisition or Abandonment of Se-
In this case, Ryan has ordinary income from the $1,000 for which Avery remains per- cured Property, showing information you need
the cancellation of debt in the amount of sonally liable immediately after the repos- to figure your gain or loss. However, if the
$2,000. The $2,000 income from the cancella- session), or lender also cancels part of your debt and must
tion of debt is figured by subtracting the
$170,000 FMV of the house from the $172,000 2. $9,000 (the FMV of the car). file Form 1099-C, the lender can include the in-
difference between the total outstanding debt formation about the foreclosure or repossession
immediately before the transfer of property and Avery figures the gain or loss on the repos- on that form instead of on Form 1099-A. The
the amount for which Ryan remains personally session by comparing the $9,000 amount real- lender must file Form 1099-C and send you a
liable immediately after the transfer ($180,000 ized with the $15,000 adjusted basis. Avery has copy if the amount of debt canceled is $600 or
a $6,000 nondeductible loss. After the more and the lender is a financial institution,
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credit union, federal government agency, or debt. In 2018, Lou purchased business prop- security interest in the property. In 2022, Rowan
other applicable entity, as discussed earlier in erty for $200,000. Lou borrowed the entire pur- was unable to continue making the loan pay-
chapter 1. For foreclosures or repossessions chase price, for which Lou was personally lia- ments. Because the loan balance was
occurring in 2022, these forms should be sent ble, and gave the lender a security interest in $185,000 and the FMV of the property was only
to you by January 31, 2023. the property. In 2022, Lou was unable to con- $150,000, Rowan decided to abandon the
tinue making the loan payments. Because the property on August 3, 2022. Because Rowan
loan balance was $185,000 and the FMV of the wasn't personally liable for the debt, the aban-
property was only $150,000, Lou abandoned donment is treated as a sale or exchange of the
the property on August 1, 2022. Because Lou property in tax year 2022. Rowan's amount real-
was personally liable for the debt and the lender ized is $185,000 and the adjusted basis in the
didn't complete a foreclosure of the property in property is $180,000 (as a result of $20,000 of
3. 2022, Lou has neither gain nor loss in tax year depreciation deductions on the property).
2022 from abandoning the property. If the Rowan has a $5,000 gain in tax year 2022.
lender sells the property at a foreclosure sale in (Had Rowan’s adjusted basis been greater than
2023, Lou will have to figure the gain or deducti- the amount realized, Rowan would have had a
Abandonments ble loss for tax year 2023, as discussed earlier deductible loss.) The lender sells the property
in chapter 2. at a foreclosure sale in 2023. Rowan has nei-
You abandon property when you voluntarily and ther gain nor loss from the foreclosure sale. Be-
permanently give up possession and use of the Abandonment of property securing nonre- cause Rowan wasn’t personally liable for the
property with the intention of ending your own- course debt. If you abandon property that se- debt, Rowan also has no cancellation of debt
ership but without passing it on to anyone else. cures debt for which you aren't personally liable income.
Whether an abandonment has occurred is de- (nonrecourse debt), the abandonment is treated
termined in light of all the facts and circumstan- as a sale or exchange. Canceled debt. If the abandoned property se-
ces. You must both show an intention to aban- The amount you realize on the abandon- cures a debt for which you are personally liable
don the property and affirmatively act to ment of property that secured nonrecourse debt and the debt is canceled, you will realize ordi-
abandon the property. is the amount of the nonrecourse debt. If the nary income equal to the canceled debt. This
amount you realize is more than your adjusted income is separate from any amount realized
A voluntary conveyance of the property in lieu basis, then you have a gain. If your adjusted ba- from abandonment of the property. You must
of foreclosure isn’t an abandonment and is trea- sis is more than the amount you realize, then report this income on your return unless one of
ted as the exchange of property to satisfy a you have a loss. For more information on how the exceptions or exclusions described in chap-
debt. For more information, see Sales and Ex- to figure gain and loss, see Gain or Loss From ter 1 applies.
changes in Pub. 544. Sales and Exchanges in Pub. 544.
The tax consequences of abandonment of Loss from abandonment of business or in- Forms 1099-A and 1099-C. In most cases, if
property that secures a debt depend on vestment property is deductible as a loss. The you abandon:
whether you were personally liable for the debt character of the loss depends on the character • Real property (such as a home),
(recourse debt) or weren’t personally liable for of the property. The amount of deductible capi- • Intangible property, or
the debt (nonrecourse debt). tal loss may be limited. For more information, • Tangible personal property held (wholly or
see Treatment of Capital Losses in Pub. 544. partly) for use in a trade or business or for
See Pub. 544 if you abandoned prop- You can't deduct any loss from abandonment of investment
TIP erty that didn't secure debt. This publi- your home or other property held for personal that secures a loan and the lender knows the
cation only discusses the tax conse- use. property has been abandoned, the lender
quences of abandoning property that secured a should send you Form 1099-A showing infor-
debt. Example 1—abandonment of per- mation you need to figure your gain or loss from
sonal-use property securing nonrecourse the abandonment. Also, if your debt is canceled
Abandonment of property securing re- debt. In 2018, Lee purchased a home for and the lender must file Form 1099-C, the
course debt. In most cases, if you abandon $200,000. Lee borrowed the entire purchase lender can include the information about the
property that secures debt for which you are price, for which Lee wasn’t personally liable, abandonment on that form instead of on Form
personally liable (recourse debt), you don't and gave the bank a mortgage on the home. In 1099-A. The lender must file Form 1099-C and
have gain or loss until the later foreclosure is 2022, Lee lost a job and was unable to continue send you a copy if the amount of debt canceled
completed. For details on figuring gain or loss making the mortgage loan payments. Because is $600 or more and the lender is a financial in-
on the foreclosure, see chapter 2. the mortgage loan balance was $185,000 and stitution, credit union, federal government
the FMV of the home was only $150,000, Lee agency, or other applicable entity, as discussed
Example 1—abandonment of per- decided to abandon the home by permanently earlier in chapter 1.
sonal-use property securing recourse debt. moving out on August 1, 2022. Because Lee For abandonments of property and debt
In 2018, Kai purchased a home for $200,000. wasn't personally liable for the debt, the aban- cancellations occurring in 2022, these forms
Kai borrowed the entire purchase price, for donment is treated as a sale or exchange of the should be sent to you by January 31, 2023.
which Kai was personally liable, and gave the home in tax year 2022. Lee’s amount realized is
bank a mortgage on the home. In 2022, Kai lost $185,000 and the adjusted basis in the home is
a job and was unable to continue making the $200,000. Lee has a $15,000 nondeductible
mortgage loan payments. Because Kai’s mort- loss in tax year 2022. (Had Lee’s adjusted basis How To Get Tax Help
gage loan balance was $185,000 and the FMV been less than the amount realized, Lee would
of the home was only $150,000, Kai decided to have had a gain that would have to be included If you have questions about a tax issue; need
abandon the home by permanently moving out in gross income.) The bank sells the house at a help preparing your tax return; or want to down-
on August 1, 2022. Because Kai was personally foreclosure sale in 2023. Lee has neither gain load free publications, forms, or instructions, go
liable for the debt and the bank didn't complete nor loss from the foreclosure sale. Because Lee to IRS.gov to find resources that can help you
a foreclosure of the property in 2022, Kai has wasn’t personally liable for the debt, he also has right away.
neither gain nor loss in tax year 2022 from no cancellation of debt income.
Preparing and filing your tax return. After
abandoning the home. If the bank sells the receiving all your wage and earnings state-
house at a foreclosure sale in 2023, Kai will Example 2—abandonment of business
have to figure the gain or nondeductible loss for or investment property securing nonre- ments (Forms W-2, W-2G, 1099-R, 1099-MISC,
tax year 2023, as discussed earlier in chapter 2. course debt. In 2018, Rowan purchased busi- 1099-NEC, etc.); unemployment compensation
ness property for $200,000. Rowan borrowed statements (by mail or in a digital format) or
Example 2—abandonment of business the entire purchase price, for which Rowan other government payment statements (Form
or investment property securing recourse wasn’t personally liable, and gave the lender a 1099-G); and interest, dividend, and retirement

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statements from banks and investment firms can claim if you itemize deductions on The following IRS YouTube channels pro-
(Forms 1099), you have several options to Schedule A (Form 1040). vide short, informative videos on various
choose from to prepare and file your tax return. tax-related topics in English, Spanish, and ASL.
You can prepare the tax return yourself, see if Getting answers to your tax ques- Youtube.com/irsvideos.
you qualify for free tax preparation, or hire a tax tions. On IRS.gov, you can get •
professional to prepare your return. up-to-date information on current • Youtube.com/irsvideosmultilingua.
events and changes in tax law. • Youtube.com/irsvideosASL.
Free options for tax preparation. Go to • IRS.gov/Help: A variety of tools to help you Watching IRS videos. The IRS Video portal
IRS.gov to see your options for preparing and get answers to some of the most common (IRSVideos.gov) contains video and audio pre-
filing your return online or in your local commun- tax questions. sentations for individuals, small businesses,
ity, if you qualify, which include the following. • IRS.gov/ITA: The Interactive Tax Assistant, and tax professionals.
• Free File. This program lets you prepare a tool that will ask you questions and,
and file your federal individual income tax based on your input, provide answers on a Online tax information in other languages.
return for free using brand-name tax-prep- number of tax law topics. You can find information on IRS.gov/
aration-and-filing software or Free File filla- • IRS.gov/Forms: Find forms, instructions, MyLanguage if English isn’t your native lan-
ble forms. However, state tax preparation and publications. You will find details on guage.
may not be available through Free File. Go the most recent tax changes and interac-
to IRS.gov/FreeFile to see if you qualify for tive links to help you find answers to your Free Over-the-Phone Interpreter (OPI) Serv-
free online federal tax preparation, e-filing, questions. ice. The IRS is committed to serving our multi-
and direct deposit or payment options. • You may also be able to access tax law in- lingual customers by offering OPI services. The
• VITA. The Volunteer Income Tax Assis- formation in your electronic filing software. OPI Service is a federally funded program and
tance (VITA) program offers free tax help is available at Taxpayer Assistance Centers
to people with low-to-moderate incomes, (TACs), other IRS offices, and every VITA/TCE
persons with disabilities, and limited-Eng- Need someone to prepare your tax return? return site. The OPI Service is accessible in
lish-speaking taxpayers who need help There are various types of tax return preparers, more than 350 languages.
preparing their own tax returns. Go to including enrolled agents, certified public ac-
IRS.gov/VITA, download the free IRS2Go countants (CPAs), accountants, and many oth- Accessibility Helpline available for taxpay-
app, or call 800-906-9887 for information ers who don’t have professional credentials. If ers with disabilities. Taxpayers who need in-
on free tax return preparation. you choose to have someone prepare your tax formation about accessibility services can call
• TCE. The Tax Counseling for the Elderly return, choose that preparer wisely. A paid tax 833-690-0598. The Accessibility Helpline can
(TCE) program offers free tax help for all preparer is: answer questions related to current and future
taxpayers, particularly those who are 60 • Primarily responsible for the overall sub- accessibility products and services available in
years of age and older. TCE volunteers stantive accuracy of your return, alternative media formats (for example, braille,
specialize in answering questions about • Required to sign the return, and large print, audio, etc.). The Accessibility Help-
pensions and retirement-related issues • Required to include their preparer tax iden- line does not have access to your IRS account.
unique to seniors. Go to IRS.gov/TCE, tification number (PTIN). For help with tax law, refunds, or account-rela-
ted issues, go to IRS.gov/LetUsHelp.
download the free IRS2Go app, or call Although the tax preparer always signs the
888-227-7669 for information on free tax return, you're ultimately responsible for provid- Note. Form 9000, Alternative Media Prefer-
return preparation. ing all the information required for the preparer ence, or Form 9000(SP) allows you to elect to
• MilTax. Members of the U.S. Armed to accurately prepare your return. Anyone paid receive certain types of written correspondence
Forces and qualified veterans may use Mil- to prepare tax returns for others should have a in the following formats.
Tax, a free tax service offered by the De- thorough understanding of tax matters. For • Standard Print.
partment of Defense through Military One- more information on how to choose a tax pre-
Source. For more information, go to parer, go to Tips for Choosing a Tax Preparer • Large Print.
MilitaryOneSource MilitaryOneSource.mil/ ( on IRS.gov. • Braille.
MilTax).
Also, the IRS offers Free Fillable Coronavirus. Go to IRS.gov/Coronavirus for • Audio (MP3).
Forms, which can be completed online and links to information on the impact of the corona- • Plain Text File (TXT).
then filed electronically regardless of in- virus, as well as tax relief available for individu- • Braille Ready File (BRF).
come. als and families, small and large businesses,
and tax-exempt organizations.
Using online tools to help prepare your re- Disasters. Go to Disaster Assistance and
Emergency Relief for Individuals and
turn. Go to IRS.gov/Tools for the following. Employers can register to use Business Businesses to review the available disaster tax
• The Earned Income Tax Credit Assistant Services Online. The Social Security Adminis- relief.
(IRS.gov/EITCAssistant) determines if tration (SSA) offers online service at SSA.gov/
you’re eligible for the earned income credit employer for fast, free, and secure online W-2 Getting tax forms and publications. Go to
(EIC). filing options to CPAs, accountants, enrolled IRS.gov/Forms to view, download, or print all
• The Online EIN Application IRS.gov/EIN ( ) agents, and individuals who process Form W-2, the forms, instructions, and publications you
helps you get an employer identification Wage and Tax Statement, and Form W-2c, may need. Or, you can go to IRS.gov/
number (EIN) at no cost. Corrected Wage and Tax Statement. OrderForms to place an order.
• The Tax Withholding Estimator IRS.gov/ (
W4app) makes it easier for you to estimate IRS social media. Go to IRS.gov/SocialMedia Getting tax publications and instructions in
the federal income tax you want your em- to see the various social media tools the IRS eBook format. You can also download and
ployer to withhold from your paycheck. uses to share the latest information on tax view popular tax publications and instructions
This is tax withholding. See how your with- changes, scam alerts, initiatives, products, and (including the Instructions for Form 1040) on
holding affects your refund, take-home services. At the IRS, privacy and security are mobile devices as eBooks at IRS.gov/eBooks.
pay, or tax due. our highest priority. We use these tools to share
• The First-Time Homebuyer Credit Account public information with you. Don’t post your so- Note. IRS eBooks have been tested using
Look-up IRS.gov/HomeBuyer ( ) tool pro- cial security number (SSN) or other confidential Apple's iBooks for iPad. Our eBooks haven’t
vides information on your repayments and information on social media sites. Always pro- been tested on other dedicated eBook readers,
account balance. tect your identity when using any social net- and eBook functionality may not operate as in-
• The Sales Tax Deduction Calculator working site. tended.
(IRS.gov/SalesTax) figures the amount you

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Access your online account (individual tax- payers to help prevent the misuse of their Checking the status of your amended re-
payers only). Go to IRS.gov/Account to se- SSNs on fraudulent federal income tax re- turn. Go to IRS.gov/WMAR to track the status
curely access information about your federal tax turns. When you have an IP PIN, it pre- of Form 1040-X amended returns.
account. vents someone else from filing a tax return
• View the amount you owe and a break- with your SSN. To learn more, go to Note. It can take up to 3 weeks from the
down by tax year. IRS.gov/IPPIN. date you filed your amended return for it to
• See payment plan details or apply for a show up in our system, and processing it can
new payment plan. Ways to check on the status of your refund. take up to 16 weeks.
• Make a payment or view 5 years of pay- • Go to IRS.gov/Refunds.
ment history and any pending or sched- • Download the official IRS2Go app to your Understanding an IRS notice or letter
uled payments. mobile device to check your refund status. you’ve received. Go to IRS.gov/Notices to
• Access your tax records, including key • Call the automated refund hotline at find additional information about responding to
data from your most recent tax return, and 800-829-1954. an IRS notice or letter.
transcripts.
• View digital copies of select notices from Note. The IRS can’t issue refunds before Note. You can use Schedule LEP (Form
the IRS. mid-February for returns that claimed the EIC or 1040), Request for Change in Language Prefer-
• Approve or reject authorization requests the additional child tax credit (ACTC). This ap- ence, to state a preference to receive notices,
from tax professionals. plies to the entire refund, not just the portion as- letters, or other written communications from
• View your address on file or manage your sociated with these credits. the IRS in an alternative language. You may not
communication preferences. immediately receive written communications in
Making a tax payment. Go to IRS.gov/ the requested language. The IRS’s commitment
Tax Pro Account. This tool lets your tax pro- Payments for information on how to make a to LEP taxpayers is part of a multi-year timeline
fessional submit an authorization request to ac- payment using any of the following options. that is scheduled to begin providing translations
cess your individual taxpayer IRS online • IRS Direct Pay: Pay your individual tax bill in 2023. You will continue to receive communi-
account. For more information, go to IRS.gov/ or estimated tax payment directly from cations, including notices and letters in English,
TaxProAccount. your checking or savings account at no until they are translated to your preferred lan-
cost to you. guage.
Using direct deposit. The fastest way to re- • Debit or Credit Card: Choose an approved
ceive a tax refund is to file electronically and payment processor to pay online or by Contacting your local IRS office. Keep in
choose direct deposit, which securely and elec- phone. mind, many questions can be answered on
tronically transfers your refund directly into your • Electronic Funds Withdrawal: Schedule a IRS.gov without visiting an IRS TAC. Go to
financial account. Direct deposit also avoids the payment when filing your federal taxes us- IRS.gov/LetUsHelp for the topics people ask
possibility that your check could be lost, stolen, ing tax return preparation software or about most. If you still need help, IRS TACs
destroyed, or returned undeliverable to the IRS. through a tax professional. provide tax help when a tax issue can’t be han-
Eight in 10 taxpayers use direct deposit to re- • Electronic Federal Tax Payment System: dled online or by phone. All TACs now provide
ceive their refunds. If you don’t have a bank ac- Best option for businesses. Enrollment is service by appointment, so you’ll know in ad-
count, go to IRS.gov/DirectDeposit for more in- required. vance that you can get the service you need
formation on where to find a bank or credit • Check or Money Order: Mail your payment without long wait times. Before you visit, go to
union that can open an account online. to the address listed on the notice or in- IRS.gov/TACLocator to find the nearest TAC
structions. and to check hours, available services, and ap-
Getting a transcript of your return. The • Cash: You may be able to pay your taxes pointment options. Or, on the IRS2Go app, un-
quickest way to get a copy of your tax transcript with cash at a participating retail store. der the Stay Connected tab, choose the Con-
is to go to IRS.gov/Transcripts. Click on either • Same-Day Wire: You may be able to do tact Us option and click on “Local Offices.”
“Get Transcript Online” or “Get Transcript by same-day wire from your financial institu-
Mail” to order a free copy of your transcript. If tion. Contact your financial institution for
you prefer, you can order your transcript by call- availability, cost, and time frames. The Taxpayer Advocate
ing 800-908-9946. Service (TAS) Is Here To
Note. The IRS uses the latest encryption Help You
Reporting and resolving your tax-related technology to ensure that the electronic pay-
identity theft issues. ments you make online, by phone, or from a What Is TAS?
• Tax-related identity theft happens when mobile device using the IRS2Go app are safe
someone steals your personal information and secure. Paying electronically is quick, easy, TAS is an independent organization within the
to commit tax fraud. Your taxes can be af- and faster than mailing in a check or money or- IRS that helps taxpayers and protects taxpayer
fected if your SSN is used to file a fraudu- der. rights. Their job is to ensure that every taxpayer
lent return or to claim a refund or credit. is treated fairly and that you know and under-
• The IRS doesn’t initiate contact with tax- What if I can’t pay now? Go to IRS.gov/ stand your rights under the Taxpayer Bill of
payers by email, text messages (including Payments for more information about your op- Rights.
shortened links), telephone calls, or social tions.
media channels to request or verify per- • Apply for an online payment agreement How Can You Learn About Your
sonal or financial information. This in- (IRS.gov/OPA) to meet your tax obligation Taxpayer Rights?
cludes requests for personal identification in monthly installments if you can’t pay
numbers (PINs), passwords, or similar in- your taxes in full today. Once you complete The Taxpayer Bill of Rights describes 10 basic
formation for credit cards, banks, or other the online process, you will receive imme- rights that all taxpayers have when dealing with
financial accounts. diate notification of whether your agree- the IRS. Go to TaxpayerAdvocate.IRS.gov to
• Go to IRS.gov/IdentityTheft, the IRS Iden- ment has been approved. help you understand what these rights mean to
tity Theft Central webpage, for information • Use the Offer in Compromise Pre-Qualifier you and how they apply. These are your rights.
on identity theft and data security protec- to see if you can settle your tax debt for Know them. Use them.
tion for taxpayers, tax professionals, and less than the full amount you owe. For
businesses. If your SSN has been lost or more information on the Offer in Compro-
stolen or you suspect you’re a victim of mise program, go to IRS.gov/OIC. What Can TAS Do for You?
tax-related identity theft, you can learn Filing an amended return. Go to IRS.gov/ TAS can help you resolve problems that you
what steps you should take. Form1040X for information and updates. can’t resolve with the IRS. And their service is
• Get an Identity Protection PIN (IP PIN). IP free. If you qualify for their assistance, you will
PINs are six-digit numbers assigned to tax- be assigned to one advocate who will work with
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you throughout the process and will do every- How Else Does TAS Help Low Income Taxpayer
thing possible to resolve your issue. TAS can Taxpayers? Clinics (LITCs)
help you if:
• Your problem is causing financial difficulty TAS works to resolve large-scale problems that LITCs are independent from the IRS. LITCs
for you, your family, or your business; affect many taxpayers. If you know of one of represent individuals whose income is below a
• You face (or your business is facing) an these broad issues, report it to them at IRS.gov/ certain level and need to resolve tax problems
immediate threat of adverse action; or SAMS. with the IRS, such as audits, appeals, and tax
• You’ve tried repeatedly to contact the IRS collection disputes. In addition, LITCs can pro-
but no one has responded, or the IRS TAS for Tax Professionals vide information about taxpayer rights and re-
hasn’t responded by the date promised. sponsibilities in different languages for individu-
TAS can provide a variety of information for tax als who speak English as a second language.
How Can You Reach TAS? professionals, including tax law updates and Services are offered for free or a small fee for
guidance, TAS programs, and ways to let TAS eligible taxpayers. To find an LITC near you, go
TAS has offices in every state, the District of know about systemic problems you’ve seen in to TaxpayerAdvocate.IRS.gov/about-us/Low-
Columbia, and Puerto Rico. Your local advo- your practice. Income-Taxpayer-Clinics-LITC or see IRS Pub.
cate’s number is in your local directory and at 4134, Low Income Taxpayer Clinic List.
TaxpayerAdvocate.IRS.gov/Contact-Us. You
can also call them at 877-777-4778.

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                    To help us develop a more useful index, please let us know if you have ideas for index entries.
Index               See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                    Income from 3                                                       Qualified principal residence 
1099-C  4                         Co-owners  4                       I                                   indebtedness   9
                                                                                                         Examples  9
                                                                     Income from canceled debt     3    Qualified real property business 
A                                 D                                  Insolvency 6                        indebtedness   8
Abandonments  14                  Debts:                               Reduction of tax attributes 10    Reduction of tax attributes 12
  Canceled debt 14                  Stockholder's   4
Assistance (See Tax help)         Definitions:                       L                                  R
                                    Adjusted tax attributes 8        Limits:                            Real property business 
B                                   Qualified acquisition              Excluded farm debt 8              indebtedness   8
Bankruptcy  6                           indebtedness 9
  Reduction of tax attributes 10    Qualified farm indebtedness   8    Qualified real property business Recapture:
                                                                          indebtedness 9                 Basis reductions 11
Business:                           Qualified principal residence    Loans:                             Repossessions  12
                                        indebtedness 9
  Real property indebtedness  8     Qualified real property business   Student 4
                                        indebtedness 8                                                  S
C                                                                    M
                                                                                                        Stockholder debts 4
Canceled debt 4                   E                                  Missing children, photographs      Student loans 4
  Exceptions:                     Educational loans  4                 of  2
  Deductible debt  5                                                 Mortgage Debt Relief Act           T
                                                                       (See Qualified Principal 
  Gifts   4                       F                                    Residence Indebtedness)          Tax attributes, reduction of:
  Price reduced after 
        purchase 6                Farm indebtedness  8                                                   Bankruptcy   10
  Student loans   4                 Reduction of tax attributes 11   P                                   Insolvency 10
  Exclusions:                     Foreclosures 12                    Principal residence                 Qualified farm indebtedness  11
  Bankruptcy    6                 Form:                                indebtedness 9                    Qualified Principal Residence 
  Insolvency    6                   1099-A   13 14,                  Publications (See Tax help)         Indebtedness     10
  Qualified farm                    1099-C   13 14,                                                      Qualified real property business 
                                                                                                         indebtedness     12
        indebtedness 8                                               Q                                  Tax help 14
  Qualified principal residence   G                                  Qualified farm indebtedness   8
        indebtedness 9
  Qualified real property         Gifts 4                              Reduction of tax attributes 11
        business indebtedness    8

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