We had a short-sale in 2011 on a home where we had both a primary mortgage and a HELOC. Both loans were forgiven with the short sale of the house but I don't have paperwork which “proves” that the HELOC was spent for improvements to the home so the amount forgiven from the HELOC doesn't fall under the exclusion provisions of the “Mortgage Forgiveness Debt Relief Act”. I understand that there is IRS Form 982 which can be filled out to declare “insolvency” at the time the debt is forgiven and I am fairly certain that my liabilities exceeded my assets at the time of the short sale. Here is my question:

Can I exclude the amount forgiven from my primary mortgage using the provisions of the “Mortgage Forgiveness Debt Relief Act” and then exclude the amount forgiven from the HELOC using the “insolvency” exclusion or do I have to use one method or the other ?