question.jpgIn Federal Income Tax

I had a debt cancelled. Do I have to pay taxes?

Yes. If you had a debt cancelled (other than a gift or a bequest), then you must included the cancelled amount in gross income for tax purposes (exceptions are made for bankrupt or insolvent individuals). If you receive a cancelled debt of more than $600, it will be reported to the IRS (a 1099-C), and it must be reported as “other income.” A cancelled student debt is also taxable (unless it was cancelled because of service to a government agency). Debts cancelled in bankruptcy are not, however, taxable.