tax on debt that is canceled or forgiven without full payment. Unless you fit within one of the exceptions allowed by the IRS, the loss of your home could result in tax due. Tax on canceled debt is not new. However, it has not been much of a problem for consumers in the past. I have written articles about debt cancellation tax and some of the ways it can be avoided.Mycolleagueshave answered the question "What is debt cancellation tax" in others. Several factors have combined to make this ironic problem a consumer issue. The run up of home values in recent years and the aggressive marketing of home loans, often to people who can not afford to pay them have combined with new computer technology used by the IRS to pinpoint transactions when debt is canceled. The result has been the issuance of tax due notices to increasing numbers of financially distressed consumers.