IRS debt forgiveness issue

Say if I purchased a house at price of 500,000 w/ 100% mortgage, and then within 2 years the price of that particular house dropped to 400,000 due to market conditions, and I file for bankruptcy for falling in equity and unable to make payment. Bank foreclosed that house and auctioned at 350,000, under bankruptcy protection, the bank has to take that 150,000 in loss and I walk away with bad credit. Now, the bank’s 150,000 loss on the mortgage is “forgiveness of debt” in the eyes of the IRS, and effectively become a 150,000 reportable income that I have to pay tax on. It is true, bank’s loss is my gain since they wipped a 150,000 debt of me remember i started that loan with 0 equity, but in reality I gained nothing. Is it true that it could become a tax implication? Bankruptcy doesn’t protect me from any liability from the IRS.

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• Have you filed bankruptcy? -beiyunshan- ♀ (460 bytes) () 11/05/2006 postreply 06:17:22

• thx, so it is true then. -tank- ♂ (228 bytes) () 11/05/2006 postreply 09:54:28

• No, it is not true. Sorry, I don't discuss hypothetical case -beiyunshan- ♀ (0 bytes) () 11/05/2006 postreply 12:20:39

• why not elaborate a little on this? -tank- ♂ (389 bytes) () 11/05/2006 postreply 13:52:33

• Each case is unique. -beiyunshan- ♀ (2900 bytes) () 11/05/2006 postreply 16:49:03