I have a son (34 years old) who lived with my wife and i in 2016. He had zero income. I want to claim him as a dependent. Now I find out that he received a cancellation of debt from Wells Fargo for 19K. Does this cancellation of debt count as normal gross income which would exclude him from being a dependent for me? >>it depends; You do not enter your dependent's income on your return. If it has to be reported it, he will file it on his own return. then you can not claim the child as your dependent on your return since his gross income is over $6.3K as single. However, the IRS will also get a copy of the tax form so your son'll have to include it on his return, but there are severalexclusions and exceptions that can reduce the amount he owes or exempts him from paying taxes on it altogether. One of the examples as you can see is that if he filed for bankruptcy, then you still may claim him as your dependent on your return.
Also, would it make a difference to me on my taxes if my son filed for insolvency which would make this 19K income forgiven?=======>yes then since he has no income to report to the IRS then you can claim him on your fed return. Say the exception includes debts discharged during bankruptcy and debts of consumers who are insolvent (meaning their liabilities exceed their assets) before the cancellation of debt. However, the exclusion applies only up to the amount by which consumers are insolvent. That means say $19k in debts were forgiven and liabilities exceeded assets by $7k, then the only$7k would not be counted as taxable income. ?The remaining $12k would be reported under other income , then you can not claim him pn your return sinc e his gross income exceeds $6.3K;$12K>$6.3K