Have Tax Questions? Ask a Tax Expert for Answers ASAP
You may be better off going through the steps of filing out IRS Form 982 and presenting that you were insolvent (if possible) right before the property was lost.
1. Yes, unless you qualify for an exclusion from income (see below attachments). Many people do qualify for the exclusion once they determine they are insolvent.
2. No, not based on my current research. There is a provision for business.
3. Yes it is still forgiveness of debt
4. See below
5. It may effect your credit rating. However, I don't know if this will have a significant impact.
Take a look at the following attached website from the IRS that help people with these questions:
IRS Publication 4681
IRS Form 982
The process is complicated; however, it will help protect you from the tax. You may want to get a qualified CPA to help you through the process.
If you have any further questions, please do not hesitate to contact me.