Question

Question 64 of 75. Which of these cancellations of debt would be includable income? O Recourse debt. Nonrecourse debt. O Debt cancellation intended to be a gift. O Purchase price reduction. Mark for follow up

Answer 1

Answer = a) Recourse debt

Explanation:

If you leave a property which is secured in which you are personally liable and you cancel the debt , you will have a ordinary income which will be included in the tax return equal to the debt cancelled.

Option b is not correct because as per IRS rules if you abandon a property which is secured by a debt but you are not personally liable than you may have gain or loss but not income to be included in tax return

There are certain exception to cancellation of debt income :

1) you don't have income from canceled debt if the debt is canceled as a gift, be-quest, devise, or inheritance.

2)A qualified purchase price reduction given by the seller of property to the buyer.

3) certain other education loan repayment

Thus, option c and d are incorrect.

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