California Investment Property

For example, if I have 400k and sell for 200k will I have to claim the difference as income on a 1099?

The property income is full recourse, you will most likely be charged for the 200k you stuffed in your pocket.

If they cancel, you must complete state and federal income tax, the state that it requires all federal government only exempt some cases, poor investment is not one of them

Yes, you, since you bought it as an "investment". The bank will probably not for you to walk because of the $ 200k without consequences for you. Would you like it, if you owed the bank $ 200k and they'll Stiffed for this??? Next time, do not listen to HGTV or A & E for your investments. Real estate prices do not always go up. 30 seconds of research would have told you that.

Yes .. and you are assuming that the bank will allow you selling the property.