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Cancellation of Debt Tax Guide 2025
If you’ve had a loan forgiven or settled a debt for less than you owe, the IRS may treat the cancelled amount as taxable income. That surprise tax bill can come with confusion and frustration, especially if you're already struggling financially.
This free Cancellation of Debt Tax Guide 2025 helps individuals understand when cancelled debt is considered income, how to report it, and whether you qualify for the insolvency exclusion to reduce or avoid tax altogether.
What’s Covered in the Guide?
When forgiven debt (like credit cards or repossessions) becomes taxable
The role of Form 1099-C and what it means for your tax return
Step-by-step instructions for determining insolvency
How to fill out Form 982 to exclude debt from income
Examples to help you calculate whether you owe taxes
Tax attribute reduction rules (and why they matter)
What Is Insolvency?
You’re considered insolvent when your total liabilities exceed the fair market value of your assets. If you're insolvent at the time the debt is cancelled, you may be able to exclude some or all of the cancelled amount from income—potentially saving thousands in taxes.
The guide includes an insolvency worksheet to help you calculate your position and determine how much of the debt can be excluded.
Don’t Deal with Debt Cancellation Alone
Tax rules for cancelled debt can be complex. Misreporting it could lead to penalties or missed savings. Aldaris CPA assists individuals in resolving tax issues related to debt forgiveness, repossessions, and insolvency each year.