In this tax tip, the IRS reminds taxpayers of the exception to income recognition on mortgage debt forgiveness. To qualify for the exception, the debt must have been used to buy, build, or substantially improve a principal residence, and the residence must secure the mortgage. The maximum debt that can be excluded under this exception is $2 million ($1 million for married filing separate). Proceeds of refinanced mortgage debt qualify for the exclusion only if they are used to buy, build, or substantially improve the main home. The excluded debt is reported on Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness). Other types of cancelled debt do not qualify for the income exclusion, including debt on second homes, rental and business property, and credit card or car loans. IRS Tax Tip 2013-31.