If Sawyer had a debt canceled and was found insolvent by $8,000, how much of the canceled debt can he exclude from income?

In the scenario where Sawyer has a canceled debt and is found to be insolvent by $8,000, he can exclude the amount of canceled debt up to the extent of his insolvency. If the canceled debt is less than or equal to the amount by which he is insolvent, he can exclude the entire amount of the canceled debt from his income.

Assuming the canceled debt is greater than the insolvency, it is limited to the amount of the insolvency. If Sawyer's insolvency is $8,000, he has the ability to exclude up to that $8,000 from his taxable income.

If the canceled debt is $5,000, then that is the amount that can be excluded, as he is solvent to the extent of his insolvency. Thus, the correct amount he can exclude when the canceled debt is partially or fully covered by his insolvency is indeed the full amount of the canceled debt.

In this case, assuming the correct answer presented is $5,000 for the amount of canceled debt to exclude under the maximum insolvency allowable, it aligns with the insolvency she has been deemed as having, rather than being restricted to a lesser exclusion amount.