Question

I paid $480,000 for our home. It’s now worth $200,000, and I owe $400,000 on the original nonrecourse mortgage. The bank has already foreclosed and sold the house at auction for $200,000. What is our tax situation? (T.S., Brentwood, Calif.)

Answer

You don’t have a tax problem, because your foreclosure and discharge of indebtedness occurs after 20061 and before 2013.2

In a foreclosure, there are two steps to finding the tax situation:

Calculating your gain or loss

Calculating your forgiveness of ... Log in to view full article.