... appreciated property (FMV> AB) in satisfaction of debt is an event that triggers the realization of income. It is similar to a sale of appreciated property followed by payment of debt. Example: Jack owes Washington Mutual $100,000 on a secured note. He satisfies the note by transferring to the bank a common stock with AB = $60,000 and FMV = $100,000. Jack must recognize a $40,000 gain on the transfer. If the creditor doesn't exercise his/her right to foreclosure (forgives the debt), the debtor will realize income from discharge of indebtedness, unless it is a gift, bankruptcy discharge, student loan or seller's cancellation of buyer's indebtedness. Example: Eagle Electrics is unable to meet the mortgage payments on its factory building. Knowing about the depressed market for industrial property in the area, mortgage holder agrees to forgive all amounts past due and to reduce the principal amount of the mortgage. Forgiven portion ...

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