"And yes, on a primary residence and loan against the property the taxes are usually forgiven."

Certainly, under many circumstances, yes. However, the IRS continues to view forgiven debt as taxable income. Whether the lender issues or does not issue the 1099-C, it is encumbant upon the taxpayer to report the (1099-C) income and prove the income, in whole or in part, is exempt from tax. Or, pay the tax on the portion of forgiven debt which is subject to tax.

Steele, I'm sure you'll agree people will hear what they want to hear... and process what they want to process... usually taking the path of least resistence.... oftentimes laboring under a false premise.

If you broadly assure people their debt forgiveness is (usually/generally/always) not taxable... that's what they take away from this Board. And that assumption can lead to problems later on ...

Many homeowners fail to report the "income" because they've been told its not taxable, and that is a problem. Many people believe if the lender doesn't issue a 1099-C they are off the hook and this, too, is a problem.

Debt forgiveness from an acquisition, purchase money mortgage on a primary residence IS exempt from tax, but debt forgiveness from cash out refinances and second mortgages is not automatically exempt from taxation.... any debt in excess of the acquisition indebtedness or the cost for qualified repairs or improvements is subject to exposure to tax liability...

I speak from experience. Our staff CPA who runs a free tax clinic in a local city of about 20,000, has had many instances in which the former homeowner mistakenly believes there would be no tax consequences resulting from debt forgiveness on the short sale or foreclosure of a primary residence.... who then must unravel a problem... perhaps an expensive problem, which could have been avoided.

I think instead of painting with a broad tipped marker, we should take care and use a fine point pencil.

Executive Director, Society for Preservation of Continued Homeownership, a nonprofit 501c3 Corporation, and Author, Fight Foreclosure! (Wiley2008) How to cope with a mortgage you can't pay, Negotiate with your bank, and Save your home!