Reply #15: This happened to me during the real estate bust in the late 80's

[MazeRat7]

We were a 2 income family, just starting our careers, and had just bought our first home some 5 years earlier. My wife at the time became very ill and eventually was recognized as disabled by the SSA. In the process we had to find another place to live since we could no longer afford the house payments. After working with the PMI company and the mortgage company, both agreed not to foreclose if we could find a buyer. We did at current market rates which was 1/2 the original home price (just over 45k).

Well, to make a long story short, we got a letter from the IRS stating we owed taxes on the other 1/2 (or 45k). Their "reasoning" (if you care to call it that) was that we borrowed 90k to finance the home, paid back 45k (from selling the home), so we must have "made" 45k in the process and owed taxes.

It cost us another 5k in attorney and CPA fees to fight the issue and for a long time I was working 2 jobs just to keep a roof over our head and stay out of chapter 11. It was hard as hell and I was a "professional" with some resources at my disposal. Any one of lesser means would have been fucked. I sure thought we were.

MZr7