is now 
If your lender cancelled or forgave your mortgage debt in 2012, the debt forgiveness generally results in taxable income. If you’re already enduring a financial crisis in which you lost your home to foreclosure, this may seem like a double whammy. Yet there is some tax relief for those who qualify.
If the cancelled debt is for your main home and the debt was used to buy, build or substantially improve your principal residence, the cancelled debt may be excluded as income. The maximum qualified debt excludable under this exception is $2 million ($1 million for married filing separate).
You may also qualify for an exclusion if the cancelled mortgage was a refinanced loan you used only to buy, build or substantially improve your main home. That exclusion is limited to the amount of the principal of the old mortgage before refinancing.
The past five years have resulted in record-breaking numbers of foreclosed and cancelled primary residence debts throughout America. Lawmakers continue to debate ways to help those who have lost their home from enduring more financial struggles including unanticipated tax obligations. At this point, the limited 2007 income tax exclusions have been extended through 2013.
For more information on the tax consequences there is an online IRS “assistant” or you may contact McRuer CPAs for help determining the tax you may owe.
