This Week's Question

March 1, 2005

By Nena Groskind

Q:  I lost my job last year and have fallen way behind on my mortgage payments, with little immediate hope of catching up. I’m trying to sell my home and expect to find a buyer, but it seems unlikely that I will get enough to cover the outstanding mortgage. (I did a cash-out refinancing several months ago and so don’t have much equity left.) The lender is willing, within reason, to write off the difference between the selling price and the loan balance. Can I claim my loss on the home sale as a deduction on my federal taxes?

A:   No. And even worse, under current law, the amount your lender forgives will be treated as taxable income. Isn’t that helpful? The real estate industry has been battling this double whammy for years, but those efforts haven’t gotten very far in the best, and the prospects this year don’t look any better.