Tax Waivers For Foreclosed Homes
Under the Mortgage Debt Relief Act of 2007, borrowers who have had their homes foreclosed will not be required to pay for the taxes on the forgiven debt amount. The Act applies to debts forgiven from 2007 through 2012.
The main criterion for qualification is that the foreclosed house is the principal residence of the borrower and not a second or a vacation home. Other guidelines are, that the amount of the forgiven debt should be a maximum of $2 million for a married couple and $1 million when filed separately.
Also, the waiver is only for forgiven debts on a residential home and not for other loans like auto. The IRS adds that lenders most likely have filed a 1099-C form for these cancelled debts so these should just be reflected as debt forgiveness in the income tax return.
No taxes will be owed for restructured mortgages on the principal residence as well.