The 2007 Mortgage Forgiveness Debt Relief Act, extended through the end of 2013, specifically excludes forgiven mortgage debt from income. At least, as long as it related to a primary residence, was less than $2 million for joint filers, and, as the IRS puts it, was “directly related to a decline in the home’s value or the taxpayer’s financial condition.”
via Ask Stacy: Will I Have to Pay Taxes Because of a Foreclosed Home? – Yahoo Finance.