Thank you for your follow up.
The mortgage balance before the short sale would be included in your debt.
The fair market value of the house would be counted as an asset.
Your assets are everything you own - your house, vehicles, housewares - if you look at the insolvency worksheet they will list out all of your assets.
Your debt is what you owe - the mortgage, credit card debt - any debt that you have.
When your debt exceeds your assets then your insolvent. You can exclude income up to the amount of debt you are insolvent by.
So, if you had $200,000 in assets and $300,000 in liabilities, you could exclude up to $100,000 of cancellation of debt from your income.
However, if you had $200,000 in assets and $100,000 in liabilities you could not exclude any of the cancellation of debt.
Thanks again for using JustAnswer.com and have a great night.
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