Harry was experiencing financial difficulties and could not make the mortgage pa

Question

Harry was experiencing financial difficulties and could not make the mortgage payments on his home. The mortgage holder agreed to reduce the debt principal by $50,000 because the real estate market was depressed. Assuming that Harry is not bankrupt or insolvent, would the tax consequences differ under the following circumstances?
a. The mortgage is held by the person who sold him the property
b. The mortgage is on his personal residence and is held by the financial institution that made the loan for the purchase of his residence
c. The farmland that was held by a bank that loaned the money so that harry could purchase the land.
d. Harry debt was reduced because the mortgage holder, a bank, held a drawing that Harry won; the prize was a $50,000 reduction in his mortgage.

Explanation / Answer

c

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