Mississippi homeowners who suffer a foreclosure or who sell their home at a loss will not be able to use the Mortgage Forgiveness Debt Relief Act to exclude taxes on the “forgiven” or “canceled” debt from the loss. The Act expired at the end of 2013. Debt that is reduced by mortgage modifications also qualified for the relief. Forgiven debt or canceled debt is any debt that is wiped away or written off. Forgiven debt is considered taxable income by the IRS and you will now have to pay taxes on this money.
The Mortgage Forgiveness Debt Relief Act created an exception that allowed taxpayers to exclude this income.
Any debt modified or discharged in bankruptcy is not considered income and is not subject to payment of taxes. Since the Mortgage Forgiveness Act has now expired, filing bankruptcy or using the Internal Revenue insolvency exception is the only way to get rid of this income and not be required to pay taxes on the forgiven debt.