How Property Tax Lien Foreclosure and Non-Payment of Mortgage Affects Taxes

In the event of foreclosure from non-payment of mortgage, the debt due may be 'canceled', the IRS considers cancelled debt  taxable in certain cases. In other words taxable income that would otherwise not have been gained in the event of non-foreclosure is the affect of foreclosure where debt is canceled. Also, income from the sale of property via foreclosure may be taxable to some extent.

Since foreclosure can occur from non-payment of taxes in addition to non-payment of mortgage, the unpaid taxes can lead to a tax-lien foreclosure. In this event the property can be foreclosed by the government from non-payment of property tax and sold. Essentially this process cancels the taxes due via the tax lien foreclosure where the owner owing taxes loses the property.