Mortgage Workouts, Now Tax-Free for Many Homeowners

Homeowners whose mortgage debt was partly or entirely forgiven may be able to claim special tax relief by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attaching it to their federal income tax return.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude certain debt forgiven on their principal residence up to $2 million ($1 million for a married person filing for a separate return.

for additional information visit the IRS website
IRS Publication 4705 (2-2009)
Catalog number 51765 C