Home Mortgage Foreclosures & Cancellation Of Debt Income

Syndicated personal finance columnist Michelle Singletary includes this comment in a recent story on an income tax issue that may be causing problems for many homeowners who have lost their homes in foreclosure:

• [W]hen an individual or business borrows money and the debt is canceled, the borrower generally must include the amount of the canceled debt in gross income. Last year, Congress passed a law giving temporary tax relief to homeowners who had mortgage debt canceled.

• Here's the problem. The tax relief isn't given automatically. You have to file IRS Form 982 "Reduction of Tax Attributes Due to Discharge of Indebtedness," and the form has to be attached to the federal tax return. Many people entitled to this tax break aren't filing the form. Olson said she wants to work with the IRS to get the word out to more people.

For the story, see To-Do List For IRS.

See also IRS Publication 4681: Canceled Debts, Foreclosures, Reposessions and Abandonments. short sale