According to the IRS, your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012 - see 10 facts about debt forgiveness at the IRS website.
The MFDRA is effective for mortgage debt canceled between 2007 and 2012. Forgiven debt does not qualify as income if the mortgage was to purchase, repair or build on the borrower's primary residence. The forgiven debt must have been part of a mortgage restructuring or cancellation of debt following a foreclosure. Individuals are limited in this time period to $2 million of exemption and married couples filing separately are limited to $1 million each. The forgiven debt and the reason for exemption must still be filed on tax returns.
Forgiven debt qualifying as income for the IRS includes short sales on real estate. Bank foreclosures on real property may also qualify if the property later sells for less than the amount owed on the loan.
See IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments for more information regarding the income tax treatment of forgiven debt.
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