Exclusion from gross income
(1) In general
(1)In general#
Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if—
(A) the discharge occurs in a title 11 case,
(B) the discharge occurs when the taxpayer is insolvent,
(C) the indebtedness discharged is qualified farm indebtedness,
(D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness, or
(E) the indebtedness discharged is qualified principal residence indebtedness which is discharged— (i) before January 1, 2026 , or (ii) subject to an arrangement that is entered into and evidenced in writing before January 1, 2026 .
(1)(A)#
the discharge occurs in a title 11 case,
(1)(B)#
the discharge occurs when the taxpayer is insolvent,
(1)(C)#
the indebtedness discharged is qualified farm indebtedness,
(2)Coordination of exclusions#
(A) Title 11 exclusion takes precedence Subparagraphs (B), (C), (D), and (E) of paragraph (1) shall not apply to a discharge which occurs in a title 11 case.
(B) Insolvency exclusion takes precedence over qualified farm exclusion and qualified real property business exclusion Subparagraphs (C) and (D) of paragraph (1) shall not apply to a discharge to the extent the taxpayer is insolvent.
(C) Principal residence exclusion takes precedence over insolvency exclusion unless elected otherwise Paragraph (1)(B) shall not apply to a discharge to which paragraph (1)(E) applies unless the taxpayer elects to apply paragraph (1)(B) in lieu of paragraph (1)(E).
(2)(A)Title 11 exclusion takes precedence#
Subparagraphs (B), (C), (D), and (E) of paragraph (1) shall not apply to a discharge which occurs in a title 11 case.
(2)(B)Insolvency exclusion takes precedence over qualified farm exclusion and qualified real property business exclusion#
Subparagraphs (C) and (D) of paragraph (1) shall not apply to a discharge to the extent the taxpayer is insolvent.
(2)(C)Principal residence exclusion takes precedence over insolvency exclusion unless elected otherwise
(3)Insolvency exclusion limited to amount of insolvency#
In the case of a discharge to which paragraph (1)(B) applies, the amount excluded under paragraph (1)(B) shall not exceed the amount by which the taxpayer is insolvent.