Donttrythisathome.org

So far, and I say that like I can't believe it, because I really can't believe it, my old house that I had been trying to short sale for nearly 3 years has been written off by Bank of America with a deed in lieu of foreclosure. I haven't been concerned about that property in a while, but now that may appear as $200,000+ more income on my tax return, depending on how this statement is interpreted...

If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.

One more bullet to sweat.