If your lender cancels part or all of your debt, you normally must pay tax on that amount. However, the law provides for an exclusion that may apply to homeowners who had their mortgage debt cancelled in 2014. In most cases where the exclusion applies, the amount of the cancelled debt is not taxable. Here are the top 10 tax tips about mortgage debt cancellation:

  1. Main Home. If the cancelled debt was a loan on your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.
  2. Loan Modification. If your lender cancelled part of your mortgage through a loan modification or ‘workout,' you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.
  3. Refinanced Mortgage. The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. Amounts used for other purposes don't qualify.
  4. Other Cancelled Debt. Other types of cancelled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of cancelled debts to be nontaxable.
  5. Form 1099-C. If your lender reduced or cancelled at least $600 of your debt, you should receive Form 1099-C, Cancellation of Debt, in January of the next year. This form shows the amount of cancelled debt and other information.
  6. Form 982. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the form with your federal income tax return.
  7. IRS.gov tool. The IRS has several free tools on its website to help you file your tax return. Use the Interactive Tax Assistant tool on IRS.gov to find out if your cancelled mortgage debt is taxable.
  8. Exclusion extended. The law that authorized this exclusion had expired at the end of 2013. The Tax Increase Prevention Act extended it to apply for one year, through Dec. 31, 2014.
  9. More Information. For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.

Additional IRS Resources:

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Upcoming Tax Dates

April 10 — Employees who work for tips
If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.

April 10 — Communications and air transportation taxes under the alternative method
Deposit the tax included in amounts billed or tickets sold during the first 15 days of March.

April 14 — Regular method taxes
Deposit the tax for the last 16 days of March.

April 18 — Individuals
File a 2016 income tax return (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic 6 month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. For more information, see Form 4868. Then, file Form 1040, 1040A, or 1040EZ by October 16.

April 18 — Corporations
File a 2016 calendar year income tax return (Form 1120) and pay any tax due. Details

April 18 — Individuals
If you are not paying your 2017 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2017 estimated tax. Use Form 1040ES.

April 18 — Household Employers
f you paid cash wages of $1,800 or more in 2016 to a household employee, you must file Schedule H Details

April 18 — Corporations
Deposit the first installment of estimated income tax for 2017 Details

April 18 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in March.

April 18 — Nonpayroll withholding
If the monthly deposit rule applies, deposit the tax for payments in March.

April 18 — Household employers
If you paid cash wages of $1,900 or more in 2016 to a household employee, you must file Schedule H (Form 1040). If you are required to file a federal income tax return (Form 1040), file Schedule H (Form 1040) with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H (Form 1040) if you paid total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees. Also, report any income tax you withheld for your household employees.

April 27 — Communications and air transportation taxes under the alternative method
Deposit the tax included in amounts billed or tickets sold during the last 16 days of March.

April 29 — Regular method taxes
Deposit the tax for the first 15 days of April.

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