I lost my home. Now I received a 1099 from my mortgage lender

People who lose their homes in foreclosure, abandon them or give them back to their lenders will receive a Form 1099-C Cancellation of Debt because the lender has forgiven a portion of the debt.

The forgiven amount is the difference between the amount owed on the mortgage and the value of the home. Prior to 2007, consumers had to pay federal taxes on the forgiven amount.

We're selling our house. What taxes do we owe?

Taxpayers can exclude gains from the sale of your personal residence up to $250,000 ($500,000 married filing jointly) if all the following are true:

• You meet the ownership test – owned the home for at least 2 years
• You meet the use test - lived in the home as your main home for at least 2 years
• During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

Report the gain from the sale on line 8 of Schedule D (use Form 1099-S if you received one). Then on line 9 of Schedule D, write "Section 121 exclusion" in column (a) of that line and show the amount of the exclusion in column (f) as a loss in parentheses.
For more information please see IRS Publication 523, Selling Your Home (.pdf).