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Cancellation of Indebtedness

A lender will, on occasion, forgive some portion of a borrower's debt, which is generally treated as taxable income to the borrower. Some exceptions to this rule are available, but, until recently, when a lender forgave some portion of a mortgage debt (such as in so-called "short sales," foreclosures and "workouts"), the borrower was required to pay tax on the debt forgiven.