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 New Hampshire, as in other states, when you borrow money and are obligated to repay it at a future date, this constitutes a debt. If for some reason this debt is forgiven or discharged for an amount less than what you owe, it is considered canceled debt. Common reasons for debt cancellation include the creditor's inability to collect, foreclosure, repossession, voluntary transfer to the lender, property abandonment, or mortgage modification. Generally, the amount of debt that is canceled is considered taxable income by the Internal Revenue Service (IRS) and must be reported on your tax return in the year the cancellation occurs. However, there are exceptions where the canceled debt may be excluded from gross income, such as insolvency, certain types of student loan forgiveness, and situations where the debt is discharged in bankruptcy. It's important to consult with an attorney or a tax advisor to understand the specific tax implications of any canceled debt and to ensure compliance with both federal and state tax laws.