2018 UltraTax CS
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The State of Pennsylvania does not consider a cancellation of personal debt to be taxable income.
Cancellation of a personal debt, such as a credit card, is generally not taxable on Form PA-40 unless the debt is business related. If it is a personal debt, and there were no business expenses that were deducted on Form PA-40, it is not reported as income. However, if this debt paid for business expenses that were reported on Schedule UE or Schedule C, E, or F, then it should be reported on Form PA-40. Refer to the Pennsylvania Personal Income Tax Guide, Chapter 24 for details about cancellation of debt.
To report cancellation of personal debt as taxable income on Form PA-40, use the Other Income statement on federal Screen Income to enter the following:
- Enter code S in the F, S column to indicate this is state-only income.
- Enter a Description.
- Enter the taxable amount that should be reported on Form PA-40 in the Amount column.
- Enter the state postal code PA in the State column.
- Cancellation of debt that is entered on Schedules C and F will automatically transfer to the Other Income line of the PA Schedule C or F.
- Cancellation of debt that is entered on Schedule E will automatically transfer to the PA return as rental income.
- If the cancellation of debt was related to abandonment (Form 1099-A), the gain would be reported on PA Schedule D and should be entered in the Sale detail statement dialog on Screen PAAdj in the Income & Adjustments folder.
Related topic: 1040 Pennsylvania frequently asked questions
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