I recently completed a deed in lieu of foreclosure for 2 condos. The two banks will send me a 1099 form each (forgiveness of debt) by next year. When I do my taxes next year, one of these 1099 forms froms will not be taxable because one of the condos was my residence. I intend to make other 1099 form non-taxable for the reason of insolvency.
My question is: When does IRS consider me insolvent? Is it enough for me to prove that (at the time the deed in lieu was completed) my liabilities were higher than my assets? Or do I need to file for bankruptcy in order to be considered insolvent by the IRS?