“Box 2 (Balance of principal outstanding) shows $83,618. Box 4 (Fair market value of property) shows $97,447. Will I have to pay income tax on this?”----> The amount in Box 2 is your outstanding loan balance; the property's fair market value is found in Box 4 (generally, the gross foreclosure bid price is considered to be the FMV). As there is no cancelled debt ( as Box 4>Box2), you have no requirement to file Form 982. After all, the lender got a house worth $97,447 but only paid $83,618 for it. You treat this as a sale. I say this because the 1099-A is issued for an ABANDONED property. Hence, you may have to report a sale at $97,447 with a basis of $83,618 and a taxable gain of $13,829. If this is correct, the gain may not be excludable because the FMV of the property exceeded the principal owed( but in reality, the property may be sold less than the FMV on Box4). If the fair market value( actual selling price) is higher than the loan balance, it will be considered as a gain. The lender will give you the excess amount resulting from the sale of the property after satisfying his debt. As the property is a personal home, report it on Form 1040, Schedule D, following the normal rules for sale of a main home. However, 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 for MFS or up to $500,000 as MFJ.