Homeowners are really suffering due to declining home values, and there is tax relief for them. If your mortgage debt is partly or entirely forgiven during tax years 2007 - 2012, you may be able to claim special tax relief and exclude the debt forgiveness income. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence. The limit is $1 million for a married person filing a separate return.

There are tax credits for homebuyers. If you bought a house in 2008, you can take a credit of $7,500, but you’re required to repay that credit over 15 years. It’s like an interest-free loan. Under the stimulus package, buyers who purchase a home in 2009 have the option of taking a credit for up to $8,000 on their 2008 or 2009 return. That is an actual credit; you don’t have to pay it back. The good news is you can get some money for the home.