Forgiven Debt

• The specific forgiven debt through the Mortgage Forgiveness Debt Relief Act is any debt that's reduced through the restructuring of your mortgage. Additionally, it also reflects any debt that's forgiven by nature of a foreclosure on your home; no other debts will be tax exempt. The IRS defines this as qualified principal resident indebtedness. It allows up to $2 million in forgiven debt, or $1 million if you're married and filing separately.
  
  

Length of the Relief

• According to the IRS, the Mortgage Forgiveness Debt Relief Act will only apply to homes with debt forgiven between 2007 and 2012. For the 2007 date, it would apply as of December of that year, due to the act being enacted on December 20, 2007.
  
  

How Much Debt Was Forgiven

• In order to find out exactly how much of your mortgage debt was forgiven, you should look at the 1099-C form that your lender will send you in the mail. This form is the Cancellation of Debt form and should be sent by early February, at the beginning of tax season. The amount of your debt that was forgiven should be in box two.
  
  

Form 982

• This IRS form is what you'll need to fill out at tax time if you have qualified principal resident indebtedness or any other forgiven debt. The good news is that if you only have forgiven mortgage debt on your home, filling out the form will be very simple. Fill out lines 1e and 2 first. Line 1e is the amount of the discharge of qualified principal residence indebtedness. Line 2 is the total amount of this forgiven debt excluded from gross income. Afterward, simply enter that total on line 10b, only if you intend to own the home after the debt is forgiven. Attach Form 982 with your tax return.