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 - Stories From Old Farmer - by K. Pratt. Old Farmer, a.k.a. Dale Jensen began posting messages to our discussion forums at the grand age of 75. With extensive knowledge of farming and tractors, he valued the past and the ways that went with it. He shared these values with us until shortly before his passing. I spoke with Dale in his last days and requested his permission to share some of his stories with the readers of our magazine. He agreed, and provided the
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