irs loan forgiveness: California forclosure, short sale IRS, loan forgiveness - 06/25/07 09:37 AM
From  --  http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/06/05/BUGG5D3FNS1.DTL&feed=rss.business
Foreclosure taxes: Suppose your house becomes worth less than you owe, you can't keep up the mortgage payments and the lender forecloses on the property.
You may be liable for two types of taxes: capital gains and cancellation of debt income. The same holds true if you abandon the property or voluntarily turn it over to the lender.
These taxes depend on whether you have a recourse or non-recourse loan.
Non-recourse generally means that if the lender takes over your house, your debt is satisfied and the lender can't go after your other assets, even if the proceeds … (36 comments)

irs loan forgiveness: IRS liablility for short sales and loan forgiveness - 06/25/07 09:22 AM
here is a quote on the issue of deficiency and loan forgiveness.  
 
"Second, just because the lender cannot seek a deficiency judgment does not mean that the IRS will not tax them for debt forgiveness. If the lender loses $50,000 in debt forgiveness, they will report it to the IRS, because they want that deduction from income. The IRS will then tax the former owner whatever tax would be due upon the residence. Income from debt forgiveness is ordinary income, and it is fairly likely to boost the taxpayer up in tax bracket in such a case. So now they have … (5 comments)