A tax payer usually has to pay taxes on cancelled debt regardless of whether all or part of the debt was cancelled. However, certain exclusions may apply to those whose mortgage debt was cancelled in the 2014 tax year making the cancelled debt not taxable. For example, if the cancelled debt was on your main home, an exclusion may apply. The money must have been used to buy, build, or substantially improve the main home. Your mortgage must also be on your main home. Another example would be if the cancelled debt was on a refinanced mortgage. The money must have been used to buy, build, or substantially improve the main home. For eight other tips on home mortgage debt cancellation, visit the Internal Revenue Service webpage.
See Internal Revenue Service, “Top 10 Tax Tips about Home Mortgage Debt Cancellation,” (Mar. 5, 2015).
Posted by Aryane Garansi, Associate Editor, Wealth Strategies Journal