Tax Facts

8138 / How do the five discharge of debt exclusions compare to each other?

Exclusion TypeAmount ExcludedReduction of Tax Attributes
BankruptcyUnlimitedYes
InsolvencyTo the extent of insolvencyYes
Qualified Farm IndebtednessTo the extent of “adjusted tax attributes” plus basis in qualified propertyYes
Qualified Real Property Business Indebtedness (elective)Subject to two limitations:

1. To the extent amount forgiven exceeds FMV of secured property.

2. To the extent of basis of depreciable real property.

Reduction of basis of secured property.
Qualified Principal Residence IndebtednessUp to $2,000,000None, unless taxpayer retains the residence. In that case, the basis of the residence is reduced by the amount of discharged debt.
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