Forgiveness of Indebtedness Income
In accordance with the Internal Revenue Code (I.R.C.) 26 U.S.C. Section 6050P, when a debt in an amount of $600.00 or greater is discharged, it is a taxable gain to the debtor and imposes an obligation of the creditor to file Form 1099-C with the IRS. In other words, if your lender forgives (a/k/a writes-off) a portion of your mortgage loan, you would be taxed on the amount of debt forgiven as ordinary income.