The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

If you owe a debt to someone else, and they cancel or forgive that debt, the canceled amount may be taxable .  This is common in a short sale or foreclosure.  The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence.  Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.  This provision applies to debt forgiven from 2007 thru 2012.  Selling your home through a short sale or losing your home to foreclosure is complicated.  You can read more about this act on the government website, www.irs.gov  .  You should also consult a tax professional.