11. Mortgage debt forgiven by lender not counted as income
Prior to 2008, any debt forgiven by a mortgage holder would generally count as ordinary income to the borrower.
However, the Mortgage Forgiveness Debt Relief Act makes the amount of forgiven debt tax-free if it occurs between Jan. 1, 2007, and Jan. 1, 2013. The property must be your primary residence, and there is a $2 million limit on qualifying debt ($1 million if married filing separately).
This provision also applies where mortgage debt for a primary residence is forgiven as part of a refinance or other loan modification.