If your family owns real estate, it's bad enough if you're under water with your mortgage and need to sell. But the IRS hands you a host of other tax issues to consider.

First, the good news: If you owe more on your mortgage than your family's primary home is worth and need to sell, there's some relief. Under the new Mortgage Forgiveness Debt Relief Act of 2007, you'll no longer owe federal income tax on any debt you can convince your lender to forgive.

This tax break, adopted at year-end, is retroactive, and can apply to mortgage debt your bank canceled anytime in 2007, according to the American Institute of Certified Public Accountants (AICPA).

This rule, though, does not apply if you decide to rent your home before selling it. Nor does it apply if your property is an investment; nor if it is a vacation home. It also excludes home-equity loans if the proceeds are used for anything other than home improvements. In those cases, consider that you could owe income tax on forgiven debt -- even if you're already in debt and miserably under water on your loan.

Are you among the lucky ones whose home skyrocketed in value? Remember if you sell your primary family home, you're often allowed a federal capital gains tax exclusion of up to $250,000 per person, $500,000 for a couple.

Considering renting your home because you can't sell right now? Beware. Once your home becomes a rental property it may get a new "basis." This means that if your property value dropped, the value upon which taxes are calculated could be lower. Under federal tax rules, your basis is whichever is lower -- your current basis or the fair market value of the home. So if your home's fair market value is lower now than when you bought it, you could wind up owing more capital gains tax when you ultimately sell. Bad news.

Consult with your accountant, but AICPA suggests that it could be a good idea to obtain a dated appraisal at the time you rent your home, perhaps from a local real estate broker. You'll likely want to keep in mind that your objective is to show as high a value as possible. This way, you'll minimize taxable capital gains when you ultimately sell.

Did your family buy a home as investment property that's now under water?

In that case, if the value has dropped, you might be able to use your capital loss to offset capital gains on any other investments you've sold.

If all of your investments are doing lousy, you can deduct $3,000 per year against ordinary income. You can carry forward unused losses, the AICPA says, but they will continue to be limited to $3,000 per year.

Unfortunately, if it's your primary home you're selling, you can't write off your losses against other gains. You're just stuck.