Question $1-$How much of the Caldwells' cancellation of debt income is subject to tax?

$$0$

$$5,000$

$$7,000$

$$12,000$

Question $2-$

What is an explanation for the amount of the Caldwells' refund or balance due?

They did not pay in enough through withholding and estimated payments.

Their adjusted gross income is lower than their standard deduction, so they have no taxable income.

They had nonrefundable credits, which reduced their tax liability to zero.

Their refundable credits were added to their payments, increasing the amount of their refund.