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If you are concerned about Cancellation of Debt, that is generally considered income to you and is subject to tax at your marginal ordinary income tax rate.
The difference between the mortgage balance and the amount paid to the bank represents ordinary income to the person and will be reported to them and the Internal Revenue Service on form 1099-C: Cancellation of Debt. The property would need to be owned jointly for both spouses to be required to report, either on joint return or on their own separate returns.
The debt that was cancelled may be excludable from taxable income to the extent that they are considered “insolvent” immediately prior to the cancellation of the debt.
Is the debt that was cancelled owed by both spouses? If so, both spouses’ assets must be considered for the insolvency test. Jointly owned assets must always be considered in the insolvency test.
If the debt is not jointly owned, only the assets that are jointly owned and/or separately owned by the debtor are included in the insolvency calculation.