Gain or loss on the foreclosure of your house usually is capital gain or loss. However, a loss on the foreclosure of your residence is not deductible. Capital gains are reported on Form 1040, Schedule D (PDF). If, however, the gain on the foreclosure of your residence is excluded under I.R.C. 121, you are not required to report the gain on your return.

References:

• Publication 523, Selling Your Home
• Publication 537, Installment Sales
• Publication 544, Sales and Other Dispositions of Assets
• Publication 908 (PDF), Bankruptcy Tax Guide
• Form 982 (PDF), Reduction of Tax Attributes Due to Discharge of Indebtedness
• Form 1040 (PDF), U.S. Individual Income Tax Return
• Form 1040, Schedule D (PDF), Capital Gains and Losses
• Form 1099-A (PDF), Acquisition or Abandonment of Secured Property
• Form 1099-C (PDF), Cancellation of Debt
• Form 4797 (PDF), Sales of business Property

Source: www.irs.gov