Professional Documents
Culture Documents
Canceled Debts, Foreclosures, Repossessions, and Abandonments
Canceled Debts, Foreclosures, Repossessions, and Abandonments
Canceled Debts,
What's New .................. 1
Department
of the Reminder . . . . . . . . . . . . . . . . . . . . 2
Foreclosures,
Treasury
Internal Introduction . . . . . . . . . . . . . . . . . . 2
Revenue
Repossessions,
Service Common Situations Covered in
This Publication . . . . . . . . . . . . . 2
and
Chapter 1. Canceled Debts . . . ..... 3
Form 1099-C . . . . . . . . . . ..... 3
Discounts and Loan
Abandonments Modifications . . . . . . . .
Sales or Other Dispositions
(Such as Foreclosures and
..... 4
Repossessions) . . . . . . ..... 4
(for Individuals) Abandonments . . . . . . . . .
Stockholder Debt . . . . . . . .
..... 4
..... 4
Exceptions . . . . . . . . . . . . . . ..... 4
Gifts, Bequests, Devises, and
For use in preparing Inheritances . . . . . . . . . . . . . . 4
Student Loans . . . . . . . . . . . . . .
2021 Returns
4
Deductible Debt . . . . . . . . . . . . . 5
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
Chapter 3. Abandonments . . . . . . . 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 student loan debt. If your stu-
• IRS.gov (English) • IRS.gov/Korean (한국어) dent loan debt was discharged, in whole or in
• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) part, after December 31, 2020, the amount of
• IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) debt that was discharged may be nontaxable.
See Student Loans, later.
clusions and the reduction of tax attributes as- come under one of those provisions. If you can
sociated with them are discussed later under 334 Tax Guide for Small Business (For
exclude part or all of the canceled debt from in-
334
payments on your loan and you have previously 525 Taxable and Nontaxable Income
granted that lender a mortgage or other security
525
Individuals, Estates, and Trusts the year, you will need to determine your gain or
erty securing the loan. When your property is loss on the foreclosure. Foreclosures are ex-
foreclosed upon or repossessed and sold, you 542 Corporations
542
recognize income from canceled debt depends Assets Main home loan modification (workout
in part on whether you are personally liable for agreement). If a lender agreed to a mortgage
the debt and in part on whether the outstanding 551 Basis of Assets
loan modification (a “workout”) in 2020 that in-
551
loan balance is more than the fair market value cluded a reduction in the principal balance of
908 Bankruptcy Tax Guide
(FMV) of the property. Figuring your gain or loss the loan in 2021, you should read Qualified
908
and income from canceled debt arising from a Principal Residence Indebtedness under Exclu-
Form (and Instructions)
foreclosure or repossession is discussed later sions in chapter 1 to see if you can exclude part
under Foreclosures and Repossessions. 982 Reduction of Tax Attributes Due to or all of the canceled debt from income. If you
Generally, you abandon property when you can exclude part or all of the canceled debt
982
and income from canceled debt arising from an 1099-DIV Dividends and Distributions
1099-DIV
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
section 170(b)(1)(A)(ii). This is an educa-
canceled debt must be included in income un-
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- ulty and curriculum and normally has a regularly
If you are a stockholder in a corporation and the
tions and Exclusions, later. enrolled body of students in attendance at the
corporation cancels or forgives your debt to it,
place where it carries on its educational activi-
the canceled debt is a constructive distribution.
ties.
Sales or Other Dispositions For more information, see Pub. 542.
(Such as Foreclosures and Qualified lenders. These include the fol-
Repossessions) Exceptions
lowing.
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-
ment that you include canceled debt in income. 2. A state, territory, or possession of the Uni-
FMV of the property, the lender's foreclosure or
These exceptions apply before the exclusions ted States; or the District of Columbia; or
repossession of the property is treated as a sale
discussed later and don't require you to reduce any political subdivision thereof.
or disposition of the property by you and may
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.