Yep, the debt foregiveness is "income" in the eyes of the IRS, and taxable. However, if its on your primary residence, its exempt. Also exempt if you are insolvent when the property goes back, also exempt if you declare bankruptcy.
I believe there's also a defense to taxability if you live in a state like Washington, where the only remedy the creditor gets in non-judicial foreclosure is the property back, and the deficiency is automatically waived by the creditor just by virtue of creditor having chosen that method of foreclosure. Because the creditor chose the method of foreclosure, I think the so-called "income" from debt foregiveness would be "income" assigned by a third party, which is not taxable.
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Today's Featured Article - 12-Volt Conversions for 4-Cylinder Ford 2000 & 4000 Tractors - by Tommy Duvall. After two summers of having to park my old 1964 model 4000 gas 4 cyl. on a hill just in case the 6 volt system, for whatever reason, would not crank her, I decided to try the 12 volt conversion. After some research of convert or not, I decided to go ahead, the main reason being that this tractor was a working tractor, not a show tractor (yet). I did keep everything I replaced for the day I do want to restore her to showroom condition.
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