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IRS Pub 4681: Cancelled Debts, Foreclosures, Repossessions, Abandonments for Individuals

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IRS Pub 4681: Cancelled Debts, Foreclosures, Repossessions, Abandonments for Individuals Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 8 Draft Ok to Print AH XSL/XML Fileid: … ions/P4681/2020/A/XML/Cycle03/source (Init. & Date) _______ Page 1 of 17 9:55 - 9-Feb-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Publication 4681 Cat. No. 51508F Contents Reminder .................... 2 Department of the Canceled Debts, Introduction .................. 2 Treasury Common Situations Covered In Internal Revenue Foreclosures, This Publication ............. 2 Service Chapter 1. Canceled Debts ........ 3 Repossessions, Form 1099-C ............... 3 Discounts and Loan Modifications ............. 4 and Sales or Other Dispositions (Such as Foreclosures and Abandonments Repossessions) ........... 4 Abandonments .............. 4 Stockholder Debt ............. 4 (for Individuals) Exceptions ................... 4 Gifts, Bequests, Devises, and Inheritances .............. 4 Student Loans .............. 4 For use in preparing Deductible Debt ............. 5 Price Reduced After Purchase ..... 5 2020 Returns Exclusions ................... 5 Bankruptcy ................ 5 Insolvency ................. 5 Insolvency Worksheet .......... 6 Qualified Farm Indebtedness ...... 7 Qualified Real Property Business Indebtedness ....... 8 Qualified Principal Residence Indebtedness ............. 9 Reduction of Tax Attributes ....... 10 Qualified Principal Residence Indebtedness ............ 10 Bankruptcy and Insolvency ...... 10 Qualified Farm Indebtedness ..... 11 Qualified Real Property Business Indebtedness ...... 11 Chapter 2. Foreclosures and Repossessions ............ 12 Worksheet for Foreclosures and Reposessions ........... 13 Chapter 3. Abandonments ....... 13 Chapter 4. How To Get Tax Help .... 14 Future Developments For the latest information about developments related to Pub. 4681, such as legislation enacted after it was published, go to IRS.gov/ Pub4681. What’s New Foreclosure moratorium and right to re- quest forbearance. If you have a primary Get forms and other information faster and easier at: and/or secondary federally insured or guaran- • IRS.gov (English) • IRS.gov/Korean (한국어) teed mortgage loan on your primary residence • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) and you suffered a financial hardship during the • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (TiếngViệt) coronavirus emergency, you are protected from foreclosure for a period of 180 days if you Feb 09, 2021 Page 2 of 17 Fileid: … ions/P4681/2020/A/XML/Cycle03/source 9:55 - 9-Feb-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. notified the servicer of that loan. Within the ini- may recognize taxable gain. Whether you also 551 551 Basis of Assets tial 180-day forbearance period, you may also recognize income from canceled debt depends request an additional 180 days of forbearance in part on whether you are personally liable for 908 908 Bankruptcy Tax Guide by notifying the servicer of the same circum- the debt and in part on whether the outstanding Form (and Instructions) stances and reason. loan balance is more than the fair market value During the period of the forbearance, no (FMV) of the property. Figuring your gain or loss 982 982 Reduction of Tax Attributes Due to fees, penalties, or interest shall be assessed and income from canceled debt arising from a Discharge of Indebtedness (and beyond the amounts scheduled or calculated as foreclosure or repossession is discussed later Section 1082 Basis Adjustment) if you had made all contractual payments on under Foreclosures and Repossessions. 1099-C 1099-C Cancellation of Debt time and in full under the terms of the mortgage Generally, you abandon property when you voluntarily and permanently give up possession contract. 1099-DIV 1099-DIV Dividends and Distributions and use of property you own with the intention Discharge of qualified principal residence of ending your ownership but without passing it 3800 3800 General Business Credit indebtedness before 2026. Qualified princi- on to anyone else. Figuring your gain or loss pal residence indebtedness can be excluded and income from canceled debt arising from an from income for discharges before January 1, abandonment is discussed later under Aban- 2026. Common Situations donments. Covered In This Comments and suggestions. We welcome your comments about this publication and sug- Publication Reminders gestions for future editions. Student loan indebtedness. If student loan You can send us comments through The sections of this publication that apply to indebtedness is discharged after 2017 on ac- IRS.gov/FormComments. Or, you can write to you depend on the type of debt canceled, the count of the student’s death or disability, the the Internal Revenue Service, Tax Forms and tax attributes you have, and whether or not you discharged debt may not have to be included in Publications, 1111 Constitution Ave. NW, continue to own the property that was subject to income. See Student loan cancellation, later, for IR-6526, Washington, DC 20224. the debt. Some examples of common circum- stances are provided in the following para- more information. Although we can’t respond individually to graphs to help guide you through this publica- each comment received, we do appreciate your Photographs of missing children. The Inter- tion. These examples don't cover every feedback and will consider your comments and nal Revenue Service is a proud partner with the situation but are intended to provide general suggestions as we revise our tax forms, instruc- National Center for Missing & Exploited guidance for the most common situations. Children® (NCMEC). Photographs of missing tions, and publications. Do not send tax ques- children selected by the Center may appear in tions, tax returns, or payments to the above ad- Nonbusiness credit card debt cancellation. this publication on pages that would otherwise dress. If you had a nonbusiness credit card debt can- be blank. You can help bring these children Getting answers to your tax questions. celed, you may be able to exclude the canceled home by looking at the photographs and calling If you have a tax question not answered by this debt from income if the cancellation occurred in 800-THE-LOST (800-843-5678) if you recog- publication or the How To Get Tax Help section a title 11 bankruptcy case or you were insolvent nize a child. at the end of this publication, go to the IRS In- immediately before the cancellation. You teractive Tax Assistant page at IRS.gov/ should read Bankruptcy or Insolvency under Introduction Help/ITA where you can find topics by using the Exclusions in chapter 1 to see if you can ex- search feature or viewing the categories listed. clude the canceled debt from income under one This publication explains the federal tax treat- of those provisions. If you can exclude part or ment of canceled debts, foreclosures, repos- Getting tax forms, instructions, and pub- all of the canceled debt from income, you also sessions, and abandonments. lications. Visit IRS.gov/Forms to download should read Bankruptcy and Insolvency under Generally, if you owe a debt to someone current and prior-year forms, instructions, and Reduction of Tax Attributes in chapter 1. else and they cancel or forgive that debt for less publications. than its full amount, you are treated for income Personal vehicle repossession. If you had a Ordering tax forms, instructions, and tax purposes as having income and may have personal vehicle repossessed and disposed of publications. Go to IRS.gov/OrderForms to to pay tax on this income. by the lender during the year, you will need to order current forms, instructions, and publica- determine your gain or nondeductible loss on tions; call 800-829-3676 to order prior-year Note. This publication generally refers to the disposition. This is explained in chapter 2. If forms and instructions. The IRS will process debt that is canceled, forgiven, or discharged the lender also canceled all or part of the re- your order for forms and publications as soon for less than the full amount of the debt as “can- maining amount of the loan, you may be able to as possible. Do not resubmit requests you’ve celed debt.” exclude the canceled debt from income if the already sent us. You can get forms and publica- cancellation occurred in a title 11 bankruptcy tions faster online. Sometimes a debt, or part of a debt, that you case or you were insolvent immediately before don't have to pay isn't considered canceled the cancellation. You should read Bankruptcy or debt. These exceptions are discussed later un- Useful Items Insolvency under Exclusions in chapter 1 to see der Exceptions. You may want to see: if you can exclude the canceled debt from in- Sometimes a canceled debt may be exclu- come under one of those provisions. If you can ded from your income. But if you do exclude Publication exclude part or all of the canceled debt from in- canceled debt from income, you may be re- come, you should also read Bankruptcy and In- quired to reduce your “tax attributes.” These ex- 225 225 Farmer's Tax Guide solvency under Reduction of Tax Attributes in clusions and the reduction of tax attributes as- 334 334 Tax Guide for Small Business (For chapter 1. sociated with them are discussed later under Individuals Who Use Schedule C) Exclusions. Main home foreclosure or abandonment. If Foreclosure and repossession are remedies 523 523 Selling Your Home a lender foreclosed on your main home during that your lender may exercise if you fail to make the year, you will need to determine your gain or 525 525 Taxable and Nontaxable Income payments on your loan and you have previously loss on the foreclosure. Foreclosures are ex- granted that lender a mortgage or other security 536 536 Net Operating Losses (NOLs) for plained in chapter 2 and abandonments are ex- interest in some of your property. These rem- Individuals, Estates, and Trusts plained in chapter 3. edies allow the lender to seize or sell the prop- 542 542 Corporations erty securing the loan.
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