Being foreclosed on does not directly have a tax implication, since even if the house is foreclosed upon, you are still potentially liable for any unpaid amounts due on the mortgage. But if any part of the loan is foregiven or written off by the bank (e.g. say there's $500k left on the loan and they get $300k for the house at the sheriff's sale or auction; if they forgive the remaining $200k, that's where you could have tax implications). Any amount forgiven on a debt counts as income (mathematically and legally, being forgiven $1 so you don't have to pay it is the same benefit as earning $1), so you'd have to pay income tax on that.Based on what you write, neither home is an investment property: they are both your primary residence and you have simply, unfortunately, been caught between them.