Tax Law (Questions About Taxes)/mortgage question


I have a rental house in which I was in a short sale situation.  The mortgage company had written my mortgage down on their books quite a bit which I saw when I pulled my credit report.  I asked about it and they said they had to write it down to the fair market value per the Federal Gov't.  So now I have negotiated to pay off the loan amount that is the lower amount they had written the loan down to.  In essence there is forgiven debt there but they are carrying the note in their system at the lower amount that I am going to pay and my credit report also shows this amount that I am going to pay.  The bank also said that when I do this they will give me a paid in full status with them.  Do I have to pay taxes on the difference between the original principal balance amount and the new amount that they have me as owing and that I am going to pay them?


Thanks for your question.

Yes, you will owe taxes on the amount of loan forgiveness.  This will be reported on Form 982.  If you are insolvent, it may cause at least some of the debt to be non-taxable.  Also, since it is a rental you must report the sale and related gain or loss.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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