When are taxpayers not liable to pay taxes on forgiven debts?
There are five situations when a taxpayer is not responsible for paying taxes on the forgiven balance: 1. When the debt was discharged through filing bankruptcy. 2. When the debtor was technically insolvent at the time of settlement. A debtor is considered insolvent when their debts exceed their assets. 3. When the debt was due to a qualified farm expense. 4. When the debt was due to certain real property business losses. 5. When the discharge of the debt was treated as a gift. To learn whether you qualify for these circumstances, you may want to consult a licensed tax professional.
