If you borrow money and are legally obligated to repay a fixed or determinable amount at a future date, you have a debt. You may be personally liable for a debt or may own a property that's subject to a debt.

If your debt is forgiven or discharged for less than the full amount you owe, the debt is considered canceled in the amount that you don't have to pay. But the law provides several exceptions—instances in which the amount you don't have to pay is not canceled debt.

Cancellation of a debt may occur if the creditor can't collect, or gives up on collecting the amount you're obligated to pay. If you own property subject to a debt, cancellation of the debt also may occur because of a foreclosure, a repossession, a voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification.

In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs. But the canceled debt is not taxable if the law specifically allows you to exclude it from gross income.

In Georgia, as in other states, when you borrow money and are legally obligated to repay it, you have incurred a debt. If for some reason this debt is forgiven or discharged for less than the amount owed, it is considered canceled debt. The IRS generally considers canceled debt as taxable income, and you are required to report it on your tax return in the year the cancellation occurs. However, there are exceptions where the canceled debt may not be taxable, such as insolvency, bankruptcy, or certain qualified personal residence indebtedness. It's important to note that Georgia follows federal tax treatment for canceled debt, so these federal exceptions apply. Additionally, if the debt is secured by property and the property is foreclosed upon or repossessed, the cancellation of the remaining debt after the sale of the property may also result in taxable income, unless an exception applies. Taxpayers should consult with an attorney or tax advisor to understand their specific situation and any applicable state statutes that may affect their tax liability.