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.

• The Basics of Canceled Debt
• Canceled Debt and Taxable Income
• Qualifying under the Mortgage Forgiveness Debt Relief Act
• Separating Acquisition Debt and Home Equity Debt
• Insolvency Exclusion for Canceled Debts
• Bankruptcy Exclusion for Canceled Debts
• Reporting Canceled Debts on the Tax Return
• More Information About Canceled Debts and Mortgage Forgiveness