The Color of Money: Tax Tips for Recession's Victims

If you are unemployed, you might now qualify for the Earned Income Tax Credit, or EITC, which is meant for low- to moderate- income working individuals and families. As a refundable credit, it means you can get money back even if you owe no tax or the credit is more than the tax owed.

EITC can reduce your taxes, and that can mean more needed funds. You also may be eligible for a similar credit on your state income tax return. Twenty-two states offer such a credit, according to the IRS.

Go to the irs.gov and search for "States and Local Governments with Earned Income Tax Credit" to check to see if your state offers this tax benefit.

What if you've lost your home to foreclosure? Worried about a tax bill for any debt your lender may have forgiven?

There's a tax break for that too.

Generally, if a lender wipes away a debt you owe, that forgiven amount is considered taxable income. However, the worsening housing crisis led to the passage of the Mortgage Forgiveness Debt Relief Act. Up to $2 million of forgiven debt is eligible for this exclusion on a principal residence. The limit is $1 million for a married person filing a separate return. The forgiven debt won't be taxable for tax years 2007 through 2012. To qualify for the relief, you have to file IRS Form 982 "Reduction of Tax Attributes Due to Discharge of Indebtedness."

And I'm sorry, but if you had to sell your home for less than the mortgage amount, your loss is not deductible.

Additionally, other forgiven debt may be taxed. However, there are several exceptions to the taxability of canceled debt such as certain qualified student loans, or debt forgiven due to insolvency or Chapter 11 bankruptcy. To check to see if you may qualify for one of the exceptions read the instructions for IRS Form 982 "Reduction of Tax Attributes Due to Discharge of Indebtedness."

I know you may not want to even think about next year's tax season. But if you've been hit hard economically, take the time to find out what tax breaks are available to you now that you might not have qualified for in the past. Every little bit will help.