Cancellation of Debt Insolvency Worksheet

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This tax worksheet calculates a taxpayer’s insolvency for purposes of excluding cancellation of debt income under IRC Sec. 108.

A debt includes any indebtedness whether a taxpayer is personally liable or liable only to the extent of the property securing the debt. Cancellation of all or part of a debt that is secured by property may occur because of a foreclosure, a repossession, a voluntary return of the property to the lender, abandonment of the property, or a principal residence loan modification.

In general, if a taxpayer debt is canceled, forgiven, or discharged the taxpayer will receive a Form 1099-C, Cancellation of Debt, and must include the canceled amount in gross income unless the taxpayer meets an exclusion or exception.

Debt Cancellations or Reductions that Qualify for EXCEPTION to Inclusion in Gross Income:

Canceled Debt that Qualifies for EXCLUSION from Gross Income:

See Publication 4681 for further details.

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