The Mortgage Forgiveness Debt Relief Act of 2007 has been extended through 2012. This Act allows homeowners to exclude income from the discharge of debt on their principal residence.
Despite this Act, your lender may still send you a Form 1099 A or a Form 1099 C. This form must be addressed – otherwise the IRS will treat the amount on Form 1099 as income.
Form 982 is used to exclude IRS Cancellation of Debt through mortgage foreclosure, auto repossession. This Form must be filed with your return to exclude any income alleged through a 1099 C.
IRS Publication 4681 Cancelled Debts, Foreclosures, Repossessions and Abandonments (found at www.irs.gov discusses the general rules and examples to complete the form depending on the type of debt that was cancelled.