Abandonments: Canceled Debt and Property Loss (2025 IRS Guide)

This guide covers “Abandonments” within canceled debt and property loss. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Abandonments

You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Whether an abandonment has occurred is determined in light of all the facts and circumstances. You must both show an intention to abandon the property and affirmatively act to abandon the property.

A voluntary conveyance of the property in lieu of foreclosure isn’t an abandonment and is treated as the exchange of property to satisfy a debt. For more information, see Sales and Exchanges in Pub. 544.

The tax consequences of abandonment of property that secures a debt depend on whether you were personally liable for the debt (recourse debt) or weren’t personally liable for the debt (nonrecourse debt).

.See Pub. 544 if you abandoned property that didn’t secure debt. This publication only discusses the tax consequences of abandoning property that secured a debt..

Abandonment of property securing recourse debt.

In most cases, if you abandon property that secures debt for which you are personally liable (recourse debt), you don’t have gain or loss until the later foreclosure is completed. For details on figuring gain or loss on the foreclosure, see chapter 2.

Example 1—abandonment of personal-use property securing recourse debt.

In 2021, you purchased a home for $200,000. You borrowed the entire purchase price, for which you were personally liable, and gave the bank a mortgage on the home. In 2025, you lost your job and were unable to continue making the mortgage loan payments. Because your mortgage loan balance was $185,000 and the FMV of the home was only $150,000, you decided to abandon the home by permanently moving out on August 1, 2025. Because you were personally liable for the debt and the bank didn’t complete a foreclosure of the property in 2025, you have neither gain nor loss in tax year 2025 from abandoning the home. If the bank sells the house at a foreclosure sale in 2026, you will have to figure the gain or nondeductible loss for tax year 2026, as discussed earlier in chapter 2.

Example 2—abandonment of business or investment property securing recourse debt.

In 2021, you purchased business property for $200,000. You borrowed the entire purchase price, for which you were personally liable, and gave the lender a security interest in the property. In 2025, you were unable to continue making the loan payments. Because the loan balance was $185,000 and the FMV of the property was only $150,000, you abandoned the property on August 1, 2025. Because you were personally liable for the debt and the lender didn’t complete a foreclosure of the property in 2025, you have neither gain nor loss in tax year 2025 from abandoning the property. If the lender sells the property at a foreclosure sale in 2026, you will have to figure the gain or deductible loss for tax year 2026, as discussed earlier in chapter 2.

Abandonment of property securing nonrecourse debt.

If you abandon property that secures debt for which you aren’t personally liable (nonrecourse debt), the abandonment is treated as a sale or exchange.

The amount you realize on the abandonment of property that secured nonrecourse debt is the amount of the nonrecourse debt. If the amount you realize is more than your adjusted basis, then you have a gain. If your adjusted basis is more than the amount you realize, then you have a loss. For more information on how to figure gain and loss, see Gain or Loss From Sales and Exchanges in Pub. 544.

Loss from abandonment of business or investment property is deductible as a loss. The character of the loss depends on the character of the property. The amount of deductible capital loss may be limited. For more information, see Treatment of Capital Losses in Pub. 544. You can’t deduct any loss from abandonment of your home or other property held for personal use.

Example 1—abandonment of personal-use property securing nonrecourse debt.

In 2021, you purchased a home for $200,000. You borrowed the entire purchase price, for which you weren’t personally liable, and gave the bank a mortgage on the home. In 2025, you lost your job and were unable to continue making the mortgage loan payments. Because the mortgage loan balance was $185,000 and the FMV of the home was only $150,000, you decided to abandon the home by permanently moving out on August 1, 2025. Because you weren’t personally liable for the debt, the abandonment is treated as a sale or exchange of the home in tax year 2025. Your amount realized is $185,000 and the adjusted basis in the home is $200,000. You have a $15,000 nondeductible loss in tax year 2025. (Had your adjusted basis been less than the amount realized, you would have had a gain that would have to be included in gross income.) The bank sells the house at a foreclosure sale in 2026. You have neither gain nor loss from the foreclosure sale. Because you weren’t personally liable for the debt, you also have no cancellation of debt income.

Example 2—abandonment of business or investment property securing nonrecourse debt.

In 2021, you purchased business property for $200,000. You borrowed the entire purchase price, for which you weren’t personally liable, and gave the lender a security interest in the property. In 2025, you were unable to continue making the loan payments. Because the loan balance was $185,000 and the FMV of the property was only $150,000, you decided to abandon the property on August 3, 2025. Because you weren’t personally liable for the debt, the abandonment is treated as a sale or exchange of the property in tax year 2025. Your amount realized is $185,000 and the adjusted basis in the property is $180,000 (as a result of $20,000 of depreciation deductions on the property). You have a $5,000 gain in tax year 2025. (Had your adjusted basis been greater than the amount realized, you would have had a deductible loss.) The lender sells the property at a foreclosure sale in 2026. You have neither gain nor loss from the foreclosure sale. Because you weren’t personally liable for the debt, you also have no cancellation of debt income.

Canceled debt.

If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. This income is separate from any amount realized from abandonment of the property. You must report this income on your return unless one of the exceptions or exclusions described in chapter 1 applies.

Forms 1099-A and 1099-C.

In most cases, if you abandon:

• Real property (such as a home),

• Intangible property, or

• Tangible personal property held (wholly or partly) for use in a trade or business or for investment

that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your gain or loss from the abandonment. Also, if your debt is canceled and the lender must file Form 1099-C, the lender can include the information about the abandonment on that form instead of on Form 1099-A. The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or other applicable entity, as discussed earlier in chapter 1.

For abandonments of property and debt cancellations occurring in 2025, these forms should be sent to you by February 2, 2026.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments: Abandonments — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.