If you are one of the millions affected by the housing crisis, and last year managed to get your home sold to another buyer in a pre-foreclosure or short sale, then I have some good news and some bad news. If the amount that the sale was short of the mortgage debt was forgiven by your lender, as commonly happens, and you walked away from the house owing nothing, then the bad news is that the canceled debt which was forgiven is viewed as ordinary income by the IRS. It does not matter that you never saw any money, … Read more at 2009 Taxes
