February 5th, 2012:

Answer:  If your lender forgives part of the debt against you, they are supposed to issue a 1099 to alert you and the IRS of the canceled debt which is theoretically taxable. However, in the case of your principal residence (resided in for at least 2 of the last 5 years) you may be able to exclude up to $2 million of debt forgiven under the Mortgage Forgiveness Debt Relief Act of 2007.  But do not wait … The Act expires at the end of 2012 if not extended by Congress.