Regardless of the circumstances of your foreclosure, you may receive a 1099 from the IRS.

Here are 10 things the IRS wants you to know about mortgage forgiveness.

Debt forgiveness typically results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you could exclude up to $2 million of forgiven debt on your primary residence.

The limit is $1 million for a married person filing separately.

You can exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

The debt qualifies if it is to buy, build, or substantially improve your principal residence and is secured by that residence.

Refinanced debt proceeds used to substantially improve your primary residence also qualify for the exclusion.

Proceeds from refinanced debt used for other purposes, such as paying off credit card debt, cannot qualify for the exclusion.

If you qualify, claim the special exclusion by completing Form 982, Debt Discharge Tax Liability Reduction, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

Forgiven debts on second homes, rental properties, commercial property, credit cards, or auto loans do not qualify for the tax relief provision. In some cases, other tax relief provisions apply, such as insolvency. IRS Form 2 provides more details on these provisions.

If your debt is reduced or eliminated, you will usually receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of the debt forgiven and the fair market value of any foreclosed property.

Examine Form 1099-C carefully. Notify the lender immediately if any of the information displayed is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2, as well as the value listed for your home in Box 7. For more information on the Mortgage Forgiveness Debt Relief Act of 2007, visit http: http://www.irs.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossession and Abandonment, IRS Codes and Regulations.

How does the Mortgage Forgiveness Debt Relief Act work? Under federal law, a financial institution must file a Form 1099-C each time it forgives or cancels a loan balance greater than $600. This can create a tax liability for the debtor because the canceled debt is considered income for tax purposes.

This Debt Relief includes the cancellation of the entire debt. If the terms of the mortgage have been renegotiated, up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The amount of the forgiven debt must be reported on Form 982 and attached to the taxpayer’s tax return.

Be sure to report the amount canceled/forgiven on Form 982 and include that form with your tax return. It is recommended that you obtain the services of a competent tax professional.

A great site for more information on IRS codes is the United States Taxpayers Association website; membership is free.