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taxmap/pubs/p4681-000.htm#en_us_publink1000191927
Publication 4681

Canceled Debts, Foreclosures, Repossessions, and Abandonments

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(for Individuals)

Reminder(p1)


taxmap/pubs/p4681-000.htm#en_us_publink1000191956
Future Developments.(p1)
Information about any future developments affecting Publication 4681 (such as legislation enacted after we release it) will be posted at www.irs.gov/pub4681.
taxmap/pubs/p4681-000.htm#en_us_publink1000191957
Photographs of missing children.(p1)
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

taxmap/pubs/p4681-000.htm#en_us_publink1000191958Introduction

This publication explains the federal tax treatment of canceled debts, foreclosures, repossessions, and abandonments.
Generally, if you owe a debt to someone else and they cancel or forgive that debt for less than its full amount, you are treated for income tax purposes as having income and may have to pay tax on this income.
Note. This publication generally refers to debt that is canceled, forgiven, or discharged for less than the full amount of the debt as "canceled debt."
Sometimes a debt, or part of a debt, that you do not have to pay is not considered canceled debt. These exceptions are discussed later under Exceptions.
Sometimes a canceled debt may be excluded from your income. But if you do exclude canceled debt from income, you may be required to reduce your "tax attributes." These exclusions and the reduction of tax attributes associated with them are discussed later under Exclusions.
Foreclosure and repossession are remedies that your lender may exercise if you fail to make payments on your loan and you have previously granted that lender a mortgage or other security interest in some of your property. These remedies allow the lender to seize or sell the property securing the loan. When your property is foreclosed upon or repossessed and sold, you are treated as having sold the property and you may recognize taxable gain. Whether you also recognize income from canceled debt depends in part on whether you are personally liable for the debt and in part on whether the outstanding loan balance is more than the fair market value (FMV) of the property. Figuring your gain or loss and income from canceled debt arising from a foreclosure or repossession is discussed later under Foreclosures and Repossessions.
Generally, you abandon property when you voluntarily and permanently give up possession and use of property you own with the intention of ending your ownership but without passing it on to anyone else. Figuring your gain or loss and income from canceled debt arising from an abandonment is discussed later under Abandonments.
This publication also includes detailed examples with filled-in forms.
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Comments and suggestions.(p2)

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We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:

Internal Revenue Service
Tax Forms and Publications Division
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224


We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
You can send your comments from www.irs.gov/formspubs. Click on "More Information" and then on "Comment on Tax Forms and Publications".
Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.
taxmap/pubs/p4681-000.htm#en_us_publink1000312761
Ordering forms and publications.(p2)
Visit www.irs.gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received.

Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613


taxmap/pubs/p4681-000.htm#en_us_publink1000312762
Tax questions.(p2)
If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

taxmap/pubs/p4681-000.htm#TXMP4cb49b7d

Useful items

You may want to see:


Publication
 225  Farmer's Tax Guide
 334  Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
 523  Selling Your Home
 525  Taxable and Nontaxable Income
 536  Net Operating Losses (NOLs) for Individuals, Estates, and Trusts
 542  Corporations
 544  Sales and Other Dispositions of Assets
 551  Basis of Assets
 908  Bankruptcy Tax Guide
Form (and Instructions)
 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)
 1099-C: Cancellation of Debt
 1099-DIV: Dividends and Distributions
 3800: General Business Credit
taxmap/pubs/p4681-000.htm#en_us_publink1000191967

Common Situations Covered In This Publication(p2)

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The sections of this publication that apply to you depend on the type of debt canceled, the tax attributes you have, and whether or not you continue to own the property that was subject to the debt. Some examples of common circumstances are provided in the following paragraphs to help guide you through this publication. These examples do not cover every situation but are intended to provide general guidance for the most common situations.
taxmap/pubs/p4681-000.htm#en_us_publink1000191968

Nonbusiness credit card debt cancellation.(p2)

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If you had a nonbusiness credit card debt canceled, you may be able to exclude the canceled debt from income if the cancellation occurred in a title 11 bankruptcy case or you were insolvent immediately before the cancellation. You should read Bankruptcy or Insolvency under Exclusions in chapter 1 to see if you can exclude the canceled debt from income under one of those provisions. If you can exclude part or all of the canceled debt from income, you should also read Bankruptcy and Insolvency under Reduction of Tax Attributes in chapter 1.
taxmap/pubs/p4681-000.htm#en_us_publink1000191972

Personal vehicle repossession.(p2)

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If you had a personal vehicle repossessed and disposed of by the lender during the year, you will need to determine your gain or nondeductible loss on the disposition. This is explained in chapter 2 . If the lender also canceled all or part of the remaining amount of the loan, you may be able to exclude the canceled debt from income if the cancellation occurred in a title 11 bankruptcy case or you were insolvent immediately before the cancellation. You should read Bankruptcy or Insolvency under Exclusions in chapter 1 to see if you can exclude the canceled debt from income under one of those provisions. If you can exclude part or all of the canceled debt from income, you should also read Bankruptcy and Insolvency under Reduction of Tax Attributes in chapter 1.
taxmap/pubs/p4681-000.htm#en_us_publink1000191977

Main home foreclosure or abandonment.(p2)

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If a lender foreclosed on your main home during the year, you will need to determine your gain or loss on the foreclosure. Foreclosures are explained in chapter 2 and abandonments are explained in chapter 3. If the lender also canceled all or part of the remaining amount on the mortgage loan and you were personally liable for the debt, you should also read Qualified Principal Residence Indebtedness under Exclusions in chapter 1 to see if you can exclude part or all of the canceled debt from income. Detailed Example 2 and Example 3 in chapter 4 use filled-in forms to help explain these provisions.
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Main home loan modification (workout agreement).(p2)

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If a lender agrees to a mortgage loan modification (a "workout") that includes a reduction in the principal balance of the loan, you should read Qualified Principal Residence Indebtedness under Exclusions in chapter 1 to see if you can exclude part or all of the canceled debt from income. If you can exclude part or all of the canceled debt from income, you should also read Qualified Principal Residence Indebtedness under Reduction of Tax Attributes in chapter 1. Detailed Example 1 in chapter 4 uses filled-in forms to help explain the tax implications of a mortgage workout scenario.