A Realty Times article I ran across the other day got me excited. The title read, "IRS Says Foreclosures, Short Sales Can Be Less Taxing." Great, I thought, now the IRS will pitch in, too, to help homeowners facing foreclosure.

That didn't last long.

Come to find out, all that's new is an additional web page on the IRS site that explains when a homeowner may be responsible for paying taxes on any debt discharged in a foreclosure.

I can't imagine too many things that would be worse: a family loses their house to a lender's short sale (a "less-bad" alternative to foreclosure), the lender forgives the mortgage debt not covered by the sale (that was nice!) and then the IRS taxes it.

It's true: IRS regulations say that - generally speaking - if you lose your home to a short sale or foreclosure and the lender forgives some of your debt, you have to pay tax on that debt as if it were income - even though you never see a dime of the cash.

In September, the IRS launched a new website to clear up any misconceptions that it would kick a man when he's down.

"The Internal Revenue Service unveiled a special new section today on IRS.gov for people who have lost their homes due to foreclosure. The IRS also reassured homeowners that, although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes."

According to the IRS web page, "Questions and Answers on Home Foreclosure and Debt Cancellation," in some cases debt that the lender forgave (called Cancellation of Debt income) is not taxable. For example:

• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets .Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.

In other cases, Cancellation of Debt income is taxable - just as if you sold your home and made a profit on it. EXCEPT "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."

Bottom line: whether you've lived in your home at least two years or not; whether you'll work out a short sale or deed in-lieu or the lender will go through a full foreclosure process, it's important to consider the tax implications of the foreclosure - as well as all of the other financial and credit implications. At least the IRS explains the rules well. www.irs.gov.