The IRS considers $600 or more of forgiven debt as taxable income, but in some circumstances you may have to pay income tax on canceled debt that falls below $600. There are some exceptions--for example, if youre insolvent at the time your debt is settled then you dont have to report the forgiven debt as taxable income--but those exceptions have their own exceptions. Dont make any final assumptions on your tax consequences until you speak with your attorney and look at an updated 1099-C form.
Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.