In an attempt to get any financial relief possible, property owners have pursued nearly every tactic to trim their overhead. Among one of the more common and effective strategies has been to renegotiate loan terms. Renegotiating or discharging debt can be a great short-term strategy but many people are unaware that this may create a deferred tax liability. A cancellation or reduction of debt may also create an immediate tax liability.

The complex tax rules of renegotiating and discharging debt are full nuance. The purpose of this article is to summarize these tax rules to make them more understandable for you and your clients.