IRC §108 · 26 U.S.C. §108
IRC §108: Cancellation of Debt Income and Exclusions
IRC §61 says discharged debt is income; §108 lists the escapes — bankruptcy, insolvency, qualified farm and real-property debt, and student-loan discharges. Every 1099-C lands here.
What it governs
- COD is gross income under §61(a)(11) — §108 provides exclusions, not the rule
- Bankruptcy and insolvency exclusions (to the extent of insolvency), with attribute reduction
- Qualified principal-residence and farm debt exclusions within statutory caps
- Student-loan discharges for death, disability, and qualifying programs
In the GuideFull treatment in Chapter 2 of the Guide — THE TAX CUTTERY® Guide to Federal Income Taxation, Professional Edition (564 pages, 24 chapters).
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Questions this section answers
- Do I owe tax on forgiven credit-card debt?
- Generally yes — the 1099-C reports COD income. The escapes are insolvency (liabilities exceed assets at discharge), bankruptcy, or a qualifying exclusion. Insolvent on paper? File Form 982 and prove it.
- What is attribute reduction?
- The price of §108 exclusion: excluded COD reduces NOLs, credits, and asset basis in statutory order. You skip income today by shrinking tax assets tomorrow — usually still a winning trade.
- Is PPP forgiveness taxable?
- No — Congress excluded it, and the expenses paid with forgiven PPP funds stay deductible. §108-adjacent history worth remembering: exclusions are enacted per-program, never assumed.
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