Updated November 7, 2026. Quick answer: Table 1-2 in Publication 544 has two parts. Part 1, only if you were personally liable, figures ordinary income from canceled debt: the debt immediately before the transfer less any amount you remain liable for, minus the fair market value of the property, but not below zero. Part 2 figures the gain or loss: the smaller of line 1 or line 2 (or the whole debt, if nonrecourse), plus any sale proceeds you received, minus your adjusted basis.
What the worksheet is for
Publication 544 treats the event like a sale: “The foreclosure or repossession is treated as a sale or exchange from which you may realize a gain or loss.” “You can use Table 1-2 to figure your gain or loss from a foreclosure or repossession.” It also covers the income side: “You can use Table 1-2 to figure your income from cancellation of debt.” The information on the lender’s side is on the Form 1099-A or the Form 1099-C.
Part 1, lines 1 to 3: income from canceled debt
The worksheet heads Part 1 by saying to complete it only if you were personally liable for the debt, and otherwise to go to Part 2.
| Line | Worksheet text |
|---|---|
| 1 | “Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable after the transfer of property” |
| 2 | “Enter the FMV of the transferred property” |
| 3 | “Ordinary income from cancellation of debt upon foreclosure or repossession.” Subtract line 2 from line 1. If less than zero, enter zero. |
Part 2, lines 4 to 8: gain or loss
Part 2 is for everyone.
| Line | Worksheet text |
|---|---|
| 4 | “If you completed Part 1 enter the smaller of line 1 or line 2. If you did not complete Part 1 enter the outstanding debt immediately before the transfer of property” |
| 5 | “Enter any proceeds you received from the foreclosure sale” |
| 6 | “Add lines 4 and 5” |
| 7 | “Enter the adjusted basis of the transferred property” |
| 8 | “Gain or loss from foreclosure or repossession.” Subtract line 7 from line 6. |
Why recourse and nonrecourse differ
“If you are not personally liable for repaying the debt (nonrecourse debt) secured by the transferred property, the amount you realize includes the full debt canceled by the transfer.” For a recourse debt: “You are treated as receiving ordinary income from the canceled debt for the part of the debt that is more than the FMV.” That income can sometimes be excluded: “File Form 982 to report the income exclusion.” See Form 982 Part I and the Insolvency Worksheet.
Publication 544’s four cases, run through the lines
Publication 544 gives a car example (debt $10,000, value $9,000, adjusted basis $15,000) and a house example (debt $180,000, value $170,000, adjusted basis $175,000), each as nonrecourse and recourse. Run through the worksheet lines below with no foreclosure sale proceeds to you, line 5 is zero; every result matches the source: the car loss is $5,000 nonrecourse and $6,000 recourse with $1,000 of canceled-debt income, and the house is a $5,000 gain nonrecourse and a $5,000 loss recourse with $10,000 of canceled-debt income.
| Case | Debt | Value | Basis | Line 3 | Lines 4 and 6 | Line 8 |
|---|---|---|---|---|---|---|
| Car, nonrecourse | $10,000 | $9,000 | $15,000 | not completed | $10,000 (computed) | loss $5,000 (computed) |
| Car, recourse | $10,000 | $9,000 | $15,000 | $1,000 (computed) | $9,000 (computed) | loss $6,000 (computed) |
| House, nonrecourse | $180,000 | $170,000 | $175,000 | not completed | $180,000 (computed) | gain $5,000 (computed) |
| House, recourse | $180,000 | $170,000 | $175,000 | $10,000 (computed) | $170,000 (computed) | loss $5,000 (computed) |
What happens to a loss, and the home
A loss on property held for personal use is not a deduction: “Losses on acquisitions or abandonments of property held for personal use are not deductible.” If the property was your main home, the lender’s Form 1099-C instructions send you to Publication 523: “If the property was your main home, see Pub. 523, available at www.irs.gov/Pub523, to figure any taxable gain or ordinary income.” Publication 4681 has its own worksheet for foreclosures and repossessions in chapter 2; this page follows Publication 544’s Table 1-2. The condemnation worksheet next to it is the Table 1-3 page.
Edition
This page reads Publication 544 for 2025 returns (the file irs.gov served on November 7, 2026, sha256 in the kit data) for Table 1-2, with the Form 1099-A and Form 1099-C instructions (Rev. April 2025) for the lender-side notes. Check the IRS page for Publication 544 for anything enacted after the file was published.
Common mistakes
- Completing Part 1 for a nonrecourse debt. The worksheet is for the personally liable only, and a nonrecourse debt has no canceled-debt income from the foreclosure.
- Using the debt instead of the smaller of the debt and the value on line 4 for a recourse debt.
- Forgetting the proceeds on line 5 when the sale brought in more than the debt.
- Taking a loss on a personal car or home. The source describes it as nondeductible.
Related: Publication 544, and Pub. 544 condemnation worksheet.
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Answer againSources
- Publication 544, Sales and Other Dispositions of Assets (2025 returns): https://www.irs.gov/pub/irs-pdf/p544.pdf
- Form 1099-A, Acquisition or Abandonment of Secured Property (Rev. April 2025): https://www.irs.gov/pub/irs-pdf/f1099a.pdf
- Form 1099-C, Cancellation of Debt (Rev. April 2025): https://www.irs.gov/pub/irs-pdf/f1099c.pdf
Read from the IRS documents linked above on November 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.