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Forgive Debt Through Gifting

A debt that is forgiven as gift usually occurs in situations where money to relatives or close friends is given. debt is forgiven by the creditor to release him or her debtor for any additional balance due on the loan or the amount borrowed. When the debt is forgiven through gifts, the debt is canceled and the debtor is released from the tax liability.

Check amount of debt that is owed to you. There must be a formal confirmation of the amount of money you borrow person and outstanding balance due. Agreeing on the amount owed by the debtor.

Forgive Debt Through Gifting

Each party needs to have consensus on amount owed and remaining balance of unpaid loan. This will avoid any future conflict from arising if either party thinks there is discrepancy in balance owed on loan. Inform debtor of your interest in forgiving debt as gift.

Discuss process of debt forgiveness so that debtor understands that he or she will not owe you anything because of your willingness to cancel debt. Discuss IRS implications with debtor since canceling debt as gift will release them from tax liability. It is important that they understand that your debt forgiveness is gift.

According to IRS Publication 4681 cancellation of debt as gift is not considered as taxable income to debtor and does not have to be reported as taxable income. Nullify any written promissory notes or repayment contracts signed by debtor. If there is agreement on paper, forgiveness of debt as gift will render it void.

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How to Forgive Debt Through Gifting

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