Canceled Mortgage Debt and Taxes

To qualify for the tax-free treatment, the taxpayer will need to have filed for bankruptcy and the debts canceled at the order of the bankruptcy court.

For taxpayers faced with foreclosure or short-sales, it might be more advantageous to utilize the mortgage exclusion for acquisition debt and the insolvency exclusion for home equity and other types of canceled debt before considering a bankruptcy case.

Filing for bankruptcy can generate several tax implications, so for more details see the Bankruptcy Tax Guide (Publication 908) on the IRS Web site.

Index: Canceled Mortgage Debt and Taxes

1. The Basics of Canceled Debt
2. Canceled Debt and Taxable Income
3. Qualifying under the Mortgage Forgiveness Debt Relief Act
4. Separating Acquisition Debt and Home Equity Debt
5. Insolvency Exclusion for Canceled Debts
6. Bankruptcy Exclusion for Canceled Debts
7. Reporting Canceled Debts on the Tax Return
8. More Information About Canceled Debts and Mortgage Forgiveness