Ordinarily, if a borrower has debts forgiven outside of a bankruptcy, the amount of the forgiven debt is taxable income. This makes perfect sense if you think about it. If one party gives another money, it is either a gift or it’s income. Even if it’s a gift, if it’s over a certain threshold, the government taxes it as income, largely to prevent wealthy people from avoiding inheritance taxes.
http://ochousingnews.com/news/the-debt-forgiveness-tax-break-may-not-be-extended
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