News headline from February: Mortgage Forgiveness Debt Relief Signed Into Law - Some relief for those sellers considering working with their mortgage company on a "short sale": http://www.realtoractioncenter.com/mortgagecancellationsummary.doc Good luck!

Hello Sal. Whether you need to pay taxes on the amount reported on the 1099 depends on your overall financial circumstances. You really need to consult with a tax professional who can review your situation and advise you of applicable exemptions under state and federal tax laws. Depending on your facts, it's possible that you don't have pay taxes on the 1099 amount at all or you may have to pay taxes on the full amount or only a portion of it. If you have to pay taxes, you may be able to arrange for a payment plan (up to 5 years I believe), but the downside of a payment plan is that you'll have to pay interest and penalties. Unfortunately, we can't answer your question better on Trulia as real estate agents are not licensed to give tax advise and even if we were qualified and licensed, we could not give advice without a careful review of your particular facts which would certainly go beyond what we can do in this online forum. Good luck to you.