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 Iowa, 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. Generally, the IRS considers canceled debt as taxable income, and it must be reported on your tax return in the year the debt is canceled. However, there are exceptions where canceled debt is not taxable, such as insolvency, bankruptcy, and certain qualified personal residence indebtedness. It's important to note that Iowa conforms to federal tax law in many respects, but there may be specific state-level provisions or differences in how canceled debt is treated. Therefore, it's advisable to consult with an attorney or a tax professional to understand the specific implications for any canceled debt and the potential tax liabilities in the state of Iowa.