Read everything but still confused. Client has 130K in home debt. Bank does loan modification and cancels 68K in debt. 1099C then shows FMV of home in box 7 of 62K. Client still owns and lives in home. Original loan 1999 around 68K. In 2004 or so he refinanced the loan for around 130K, of which he used roughly 25K or so of it to put back into the home and the rest to pay of bills etc. It does not seem like the whole 68K of cancelled debt could be excluded but can't seem to figure out how to come up with an amount, if any, that would not be excludable. Any help or thoughts?
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