Debts discharged through bankruptcy are not taxable. For those who are insolvent when the debt is cancelled, some or all of the cancelled debt may escape taxation. If you really lose the farm, certain farm-related cancelled debts are not taxable. Also not taxable is the forgiveness of debt on so-called non-recourse loans, loans for which the lender's only remedy in the case of default is to repossess the property.

Also, some or all of the gain from a foreclosure sale of a personal residence qualifies for exclusion from income under the U.S. Taxpayer's Relief Act of 1977.

If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income.

The new IRS section includes a host of additional information, including worksheets to figure cancellation of debt income and gain from foreclosure as well as links to related publications, fact sheets and tax filing forms.

It behooves anyone facing these complex issues to seek professional tax help to determine how these tax rules do or do not apply.