I make about 80K and live with my mother in her house, she is about 60 years of age. She owns the house but I pay for her mortgage, HOA, property taxes, utilities, food, house fix up, car gas, everything. She does not work, makes nothing at all, not a dollar, has absolutely no savings or equity other than the house. I have claimed her as a dependent for a few years, she had zero income. Lately I started to pay off her credit card debts. In 2012 I paid off one of the credit cards with the agreement from the credit company around $5K was forgiven. She received 1099-C for about $5500.

Now the hard part. Since she owns the house with about $110K mortgage and $200K market estimated value. Thus, as I understand, she cannot plead poverty (form 982).

Questions:
1) Can I still claim her as a dependent this time? On one hand we have 1099-C for $5K, but on the other hand, I paid all the bills and debts.

2) If I cannot claim her as a dependent, I guess I cannot be head of a household, right?

Overall, can any advice be given? Not claiming her as a dependent would make my taxes much, much higher to the tune of $4K.