DESCRIPTION
This module examines the tax treatment of cancellation of debt (COD) income, including how debt is defined and when cancellation events occur. It explains the calculation and reporting of COD income, with a focus on distinctions between recourse and nonrecourse debt. Participants will explore key exclusions from gross income, including insolvency, bankruptcy, and qualified debt provisions. The module also addresses practical applications through computational exercises and real-world scenarios such as foreclosures and personal residences.
LEARNING OBJECTIVES
- Define cancellation of debt (COD) income and identify what constitutes a valid debt for tax purposes.
- Evaluate eligibility for COD income exclusions, including insolvency, bankruptcy, and qualified debt provisions.
- Distinguish between recourse and nonrecourse debt and determine the tax consequences of each in cancellation and disposition scenarios.
- (Optional) Discuss the effect of attribute reductions, recapture, debt modifications, and related parties.
- (Optional) Explore the tax consequences of debt-to-equity conversion and allocations of cancellation of debt to partnerships.
