I bought a home a couple of years back in California and purchased it at 0 down with a 1st and 2nd mortgage. We've had it now for just over 2 years. After experiencing many problems with past and sometimes, current tenants, we've dipped into a huge portion of our savings to pay the mortgage on time. Up until now we've been successful. Now, we are at our end and have tried exploring every option we can to save our credit. We tried selling the home and that didn't go, we also inquired about a short sale. We have never refinanced this home. My question is. If we can no longer make the payments for this home and it goes into a foreclosure should we expect to pay a huge amount when we file for taxes?

Actually, Congress is aware of this foreclosure problem in US in 2007. You are right to be concerned, because, usually the debt forgiveness by a financial institution is a taxable event!

But, the good news is that the Congress has passed the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer will not have to pay federal income tax on debt forgiven by a lender of a homeowners principal residence.

For a full discussion of this Law, please refer to Mortgage Forgiveness Debt Relief Act of 2007 , by logging onto the following website.

H.R. 3648: Mortgage Forgiveness Debt Relief Act of 2007 (GovTrack.us)

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