Here is a link on the Internal Revenue Service page which explains the Mortgage Debt Forgiveness Act passed December, 2007. The lender that forgives a portion of the debt owed on a mortgage will issue a 1099 to the homeowner. For example if you owe 300,000 and the property is sold for $250,000, the lender will issue to a mortgage holder a 1099 for the difference, their loss. In this case it would be $50,000. http://www.irs.gov/individuals/article/0,,id=179414,00.html
This is income to the property owner. With this act that was passed last year. If this is your primary home, this act excludes the debt. This does not apply to non-homestead properties and investor properties. Look for form 982 on the IRS website.
