Debtor is personally liable on real estate mortgage with an outstanding balance of $1.5 million and the property currently has a FMV of $1.2 million. Debtor’s basis in the property is $1 million. The property is repossessed by the bank.
If the borrower is insolvent both before and after the repossession what taxable tax gain if any, is recognized by the borrower?
Does you answer to a change if the debtor is not personally liable on the mortgage? Why or why not?