U.S. citizens are taxed on their worldwide income. They must figure gain or loss on the sale of foreign real property. If the foreign property is a residence, the home sale exclusion may apply. Note: If foreign taxes are paid on the sale, this may trigger a deduction or credit for those taxes.
When debts are cancelled in bankruptcy cases, the cancelled amount is excluded from gross income. Tax attributes are certain losses, credits, and property basis that must be reduced to the extent of the exclusion.