Cancellation of debt income is taxable as ordinary income. Internal Revenue Code section 61 provides that gross income means all income from whatever source derived.
Section 61(a)(12) specifically includes “income from discharge of indebtedness” as an item of gross income.
COD income can arise in a number of areas, such as:
•Cancellation of credit card debt
•Foreclosure of personal residence, or
•Cancellation of an automobile loan
SOURCE: IRS.gov http://www.irs.gov/
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