If your home was foreclosed or you had a short sale, you must report this on your tax return. The amount of debt forgiven by the loan holder is considered income. For tax years prior to 2017, forgiven debt due to a foreclosure or short-sale of your main home is exempt from taxes. You must file a tax return and attach Form 982 if you qualify for the exemption. Your lender should send you Form 1099-C when you foreclose on your home, this form will have the information you need to complete your tax return. For more information, see IRS Publication 4681at IRS.gov.