Andrew owns 20000 in assets and has 40000 in debt Part of th

Andrew owns $20,000 in assets and has $40,000 in debt. Part of that debt includes a $25,000 bank loan on his car. In order to get his finances in order, Andrew talks to the bank and they agree to forgive his $25,000 loan. How much (if any) does Andrew report in income as a result and why?

Solution

Ans) Any money forgiven by your creditor or bank will be counted as an income and you have to pay tax on it as according to IRS if a debt is cancelled or forgiven, then that cancelled amount is included in the gross income of borrower through tax return in the year of cancellation of dues (unless the law specifically allows you to exclude it from gross income). After a debt is cancelled, the borrower may receive a Form 1099-C from a creditor.