Bob and Linda purchased their vacation home in 2015 for $400,000. They financed the purchase with a $350,000 mortgage. In 2018, they fall upon hard times and cannot make the mortgage payments, and their mortgage is foreclosed. The mortgage company sells the house for $300,000. At the time of the sale, the mortgage balance is $325,000. The mortgage company cancels the remaining debt on the mortgage. How much income do Bob and Linda have from the cancellation of the remaining debt on their home?

Question

Quizplus · Accepted Answer

The income from the cancellation of debt is the difference between the mortgage balance at the time of the sale ($325,000) and the sale price of the house ($300,000), which is $25,000.

Bob and Linda Purchased Their Vacation Home in 2015 for $400,000