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 York, 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 an amount less than what you owe, it is considered canceled debt. The amount of debt that you no longer have to pay may be subject to income tax as cancellation of debt income. However, there are exceptions where this canceled debt may not be taxable. These exceptions can include situations such as bankruptcy, insolvency, certain types of loan modifications, and qualified principal residence indebtedness. It's important to note that the specifics of taxability can depend on both federal and state tax laws. For federal tax purposes, canceled debt is generally taxable unless an exception applies, and you must report it on your tax return in the year the cancellation occurs. New York State generally follows federal rules for the taxation of canceled debt, but there may be specific state-level provisions or differences that apply. It is advisable to consult with an attorney or a tax professional to understand the implications of debt cancellation on your individual tax situation.