Bob purchased a condo as his primary residence. After residing there for over 2 years, he buys another home and attempts to sell his condo. Failing to sell it, he rents it out. A year later, the condo is empty and Bob can't afford the payments, so the condo will be in foreclosure by the lender. It isn't, yet.
According to the IRS, canceled debt "used to buy, build or improve a principal residence" is not taxable. Does the fact that Bob later converted the residence to a rental mitigate things? Bob had lived in the condo for 2 out of the last 5 years. The 1099-C will show about $120,000 in debt foregiveness. If Bob has to show this as income, he would be better off to move back into the condo right now.