Under the Mortgage Debt Relief Act of 2007, if a mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, those taxpayers may be able to exclude up to $2 million of debt forgiveness on their principal. The limit is $1 million for married person filing a return.
Those who qualify can claim the special exclusion by filling out Form 982 and attaching it to their federal income tax return for the tax year in which the qualified debt was forgiven.
A good source for elgibility is IRS Publication 4681 which can be downloaded at www.irs.com
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