Let's say you were in deep doo doo with your mortgage company and they were about to foreclose on your home. You work a deal out where they have a short sale and the mortgage holder agrees to take 50K less than what you owe and they do not file a deficiency claim against you for the difference. The home sells for 50K less and the mortgage holder takes the hit. IRS says that was your gain. The mortgage company is supposed to send you a 1099 for the difference and that is taxable income according to IRS. Cancellation of debt. Unreal.