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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
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Experience:  15+ years tax preparation and tax advice.
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In August 2010 our mortgage company, Chase, readjusted our

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In August 2010 our mortgage company, Chase, readjusted our mortgage from a variable to a fixed rate 4% loan. They also reduced our principal by $119,170.38. This meant our payment would never go up and we thought this was a great deal. Now we have received a form 1099-C stating the cancellation of debt. The instructions on the back of this form states that we can exclude this amount from our income if it was for a qualified principal residence indebtedness, and secured by that residence, which it was. Can we exclude this amount from our income?
Submitted: 5 years ago.
Category: Tax
Expert:  Wendy Reed replied 5 years ago.

Thank you for giving me the opportunity to assist you. I will give the best answer that I can with the information provided.


Hello there,


Yes, this is possible. As long as this is your principal residence, forgiven debt(even that forgiven due to a modified or restructured loan) may be excluded from income due to the Mortgage debt Relief Act of 2007. Up to 2 million of debt may be excluded from income this way.


Here is a link to the info:,,id=179414,00.html


You will need to file Form 982 to use this exclusion.


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