This article may help - https://turbotax.intuit.com/tax-tips/rental-property/how-to-report-a-foreclosed-rental-house-on-your...
From the article: If your rental house is foreclosed on, the IRS views it as a sale. This requires you to report the gain or loss you incur on your tax return.
The article has more details on the steps to take to report the gain or loss to the IRS.
