Question

where is the Wright's cancellation of debt income reported on their tax return?

Answer 1

Cancellation of debt income means when creditor forgiven or discharge the debt then as per IRS the cancelled debt become income for the receiver and should be taxable.

There are several exceptions, where cancelled debt is not taxable.

1. Repayment of education loan or student loan

2. Gifts, bequests etc

If cancelled debt income is taxable then must be report on tax return for the year cancellation occurs.after cancellation of debt creditor sends form 1099-C showing date an amount of cancellation and the receiver will show cancelled debt income on form 1040 for individual and if any one fall in the exception then they have to file form no 982 to report the exception.