Income Tax Consequences on Foreclosure of A Residence

Abstract

<p>The high-profile spate of home mortgage foreclosures, attributable in part, at least, tosubprime mortgage lending, raises once again the question of the income tax consequences of such an event for the home owner.<strong>1 </strong>The income tax treatment departs from the usual rules for taxation of debt because of the exclusion for sale or exchange of the principal residence<strong>2 </strong>and because losses are not deductible except for losses on business or investment property.<strong>3</strong></p>