This is my understanding of the Forgiveness of Debt Act: 1. the property has to be your principal residence and 2. the forgiveness applies only to the amount forgiven in that calendar year. So, if you receive a modification with a forgiveness of $90,000 in calendar year 2013, you don't have to pay tax on that amount. However, if the $90,000 forgiveness is divided into 3 yearly installments, then you don't have to pay tax on $30,000 for 2013. If the Act is not renewed, you may have to pay tax on the additional $60,000 when forgiven.
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