As more and more taxpayers have to negotiate on everything from credit card debt, to investment real estate, cars, boats, and homes they need to be aware of the tax consequences of receiving that 1099-C reporting the debt that has been forgiven.  This is a complicated issue since you need to look at your entire financial position both before and after the debt was forgiven.  If you were considered insolvent both before and after you probably will not owe taxes BUT this has to be done correctly.

If you had either a short sale or foreclosure, you could have some capital gains to report and possible recapture of depreciation is the property was a rental.  Primary residences receive the “Primary Residence Exemption” treatment. 

These computations need to be made before you make any final agreements so you are prepared.  Taxpayers also need to be aware of any State Income Tax or Capital Gain tax consequences if they live in a State with Income Taxes OR if the property is in a State with Income Taxes.