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Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.
There are two choices available to you:
First, insolvency. You will need to complete the insolvency worksheet which is available with most tax return preparation software and at www.irs.gov If you qualify this can eliminate the taxability of the 1099C in its entirety. It is the better first choice to explore.
Second, is to use basis in your calculations of the amount which is taxable. Basis includes the amount you paid for the home plus the cost of improvements. The amount you paid for the home is the gross purchase price and NOT the amount of monthly payments and down payment you made. It can eliminate or, at least, reduce the taxable amount of the 1099C. Once again, most software has worksheets for this as does the IRS web site.
If you need additional assistance with this, please feel free to ask. The more detail you provide the better I can assist you.