Where is the Wrights' cancellation of debt income reported on their tax return?

The cancellation of debt income is reported on line 21 of Form 1040 as "Other Income." This aligns with IRS guidelines, which state that when a taxpayer has debt canceled, forgiven, or otherwise discharged, the amount of that canceled debt is typically considered taxable income and must be reported on their tax return.

In this scenario, the Wrights must include the canceled debt amount on their Form 1040 because it represents income that they've received in a different form—namely, the reduction of their debt obligations. This income reflects a financial benefit that will affect their overall tax liability for the year.

The other options reference different reporting mechanisms that are not applicable to canceled debt income. For example, a deduction on Schedule A is related to itemized deductions and would not capture income. Similarly, using lines that are generally associated with specific forms and types of income, such as capital gains or other types of income, would not be appropriate for reporting canceled debt income.