How does a person prove insolvency if they get a 1099C or A. I know it is assets to debt ratio. How does a person prove that. Does a the original loan amount that was taken over by the bank via foreclosure count as the debt as well or the amount that was not forgiven?

1. You may have to report sale on Schedule D (Form 1040).
2. Any debt canceled is your income if it was recourse liability.
3. If you lived in the house for two years and owned it for two years in last 5-years, you may be eligible to exclude gain of up to $250,000. Read: Your U.S. Tax Return: Profit From the Sale of Your Home
4. The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt of recourse loan on their principal residence. Read about foreclosure or repossession Your U.S. Tax Return: Foreclosure or Repossession of Main Home