The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.
Debt was reduced through mortgage restructuring, as well as the mortgage debt forgiven in connection with a foreclosure, may qualify for his release. In most cases, eligible homeowners only need to fill out a few lines on Form 982.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available.
See Form 982 for details.
For additional information visit the IRS website
IRS Publication 4705 (2-2009)
Catalog number 51765 C
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