Tax Facts

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

The following chart illustrates a comparison of the five discharge of debt exclusions:

































Exclusion Type Amount Excluded Reduction of Tax Attributes
Bankruptcy Unlimited Yes
Insolvency To the extent of insolvency Yes
Qualified Farm Indebtedness To the extent of “adjusted tax
attributes” plus basis in qualified property		 Yes
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 Indebtedness Up to $2,000,000 None, 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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