The favorable rule allowing debt forgiveness on a principal residence mortgage up to $2 million expired at the end of 2013. It could be extended, but given the resurgence in the housing market, it may not be included in a package of extenders this year. Stay tuned!
When debts are cancelled in bankruptcy cases, the cancelled amount is excluded from gross income. Tax attributes are certain losses, credits, and property basis that must be reduced to the extent of the exclusion.