 TITLE: What Happens with Canceled Debt? CONTENT: Is All Canceled or Forgiven Debt Taxable?\n-----------------------------------------\nWhile most canceled debts are considered taxable, there are a few exceptions to the rule. If your situation falls under one of these categories, you might still need to report the debt, but it won't be counted toward your gross income.\n*   **Bankruptcy**: If your debt was discharged in bankruptcy, it's not considered taxable income. The idea is that you're already hurting financially, and requiring you to pay taxes could make things even more difficult.\n*   **Insolvency**: If you're financially broke at the time of the cancellation—your liabilities exceed your assets—you may be able to exclude some or all of your canceled debt from your income on your tax return. The IRS determines how much you can exclude based on the extent of your financial insolvency.\n*   **Gifts**: If you borrowed money from your parents or a friend and they decided not to collect the full amount from you, that's considered a gift for tax purposes.\n*   **Tax-Deductible Interest**: If you've had a business or mortgage loan canceled, where the interest was considered tax-deductible, you won't need to report the interest portion of the forgiven amount as income. You will, however, still need to report the canceled principal amount.\n*   **Certain Student Loans**: If you've had your student loans forgiven in return for service in a specific field or career for a set period of time, the amount forgiven is not considered taxable income. The same goes if your student loans have been discharged due to death or permanent disability.\n*   **Farm or Real Estate Debt**: If your debt was attached to a farm or real estate business and you meet other eligibility requirements from the IRS, you may qualify for a special exclusion. END