Canceled Debt
If a credit company tells you that you don’t have to pay off the rest of your balance, don’t start celebrating just yet. That’s because the debt that is canceled, forgiven or discharged for less than the full amount you owe, becomes taxable. This is valid for credit card bills, car loans, mortgages, or any other debt that you might owe. Student loans, debts discharged in bankruptcy, qualified farm indebtedness are some of the exceptions to the rule.
In case you have a canceled debt, you will receive a Form 1099-C from your creditor, indicating the amount of debt forgiven. Don’t think for one second the IRS won’t know about it because they will also receive a copy of the document.
