Your taxes are still owed on your foreclosed home

renovation · 09-17-2007, 08:36 PM

The Internal Revenue Service said Monday it has added a new section to its Web site to answer tax questions for those losing their homes due to foreclosures.

The new section on IRS.gov includes a worksheet to help homeowners determine whether they are eligible for any foreclosure-related tax relief.

For those who find they owe additional tax, it includes a form for requesting a payment agreement with the IRS.

The tax agency noted that if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule also allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets.

President Bush has proposed tax relief as part of efforts to deal with the sharp rise in mortgage defaults. He said he would support legislation pending in Congress that would temporarily change tax law to let homeowners avoid paying taxes on forgiven debt in loans that are being restructured by financial institutions.
http://apnews.excite.com/article/200...D8RNES2O1.html

zippyjuan · 09-17-2007, 09:10 PM

IF you owe more than the house is worth. Sounds like they are considering the forclosure money as income to wipe out your debt (the value of the house in this case) and if you get more than that, it is considered taxable income.

Daedalus · 09-17-2007, 09:37 PM

It's taxable if they get less too. If a bank forecloses on a home, they have to take it back and they then sell it. If they accept less than the current loan balance, they have to forgive that debt. However, the debt forgiveness is considered income in the IRS' eyes. So if you did a crazy 100% loan at the peak of the bubble and you still owe $500k, and the bank forecloses and sells the home for $400k, you are assessed taxes on $100k of income. The good thing (for irresponsible homeowners) is that a lot of banks are failing to issue 1099 forms, which means a lot of people are walking away without any penalties whatsoever.

johnnymk · 09-18-2007, 05:31 AM

This definitely occurred in the early nineties when prices dropped or remained stagnant in some parts of the country.

Chgoman · 09-18-2007, 08:00 AM

The banks may have been lax on 1099's in the past, but I'm sure that will change quickly with the number of forclosures and and even larger number of short sales that are occuring.

The 1099 isn't only for the difference between what you owe and the sale price, but for the banks total loss on the property including non-paid interest and penalties, foreclosure costs, closing costs and realtor costs to sell the property, etc. It adds up quick.

09-17-2007, 08:36 PM	#1
renovation Admiral Join Date: Jan 2003 Location: You could pick up Lindsay Lohan for less than a intel 990x, and still have money left over to bail her outta jail Posts: 5,029	Your taxes are still owed on your foreclosed home The Internal Revenue Service said Monday it has added a new section to its Web site to answer tax questions for those losing their homes due to foreclosures. The new section on IRS.gov includes a worksheet to help homeowners determine whether they are eligible for any foreclosure-related tax relief. For those who find they owe additional tax, it includes a form for requesting a payment agreement with the IRS. The tax agency noted that if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule also allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets. President Bush has proposed tax relief as part of efforts to deal with the sharp rise in mortgage defaults. He said he would support legislation pending in Congress that would temporarily change tax law to let homeowners avoid paying taxes on forgiven debt in loans that are being restructured by financial institutions. http://apnews.excite.com/article/200...D8RNES2O1.html __________________ You could pick up Lindsay Lohan for less than a intel 990x, and still have money left over to bail her outta jail

09-17-2007, 09:10 PM	#2
zippyjuan Picture of the Day Guru Join Date: Oct 2002 Location: Sunny San Diego Posts: 8,756	IF you owe more than the house is worth. Sounds like they are considering the forclosure money as income to wipe out your debt (the value of the house in this case) and if you get more than that, it is considered taxable income. __________________ I add new pictures to my photo gallery pretty regularly. You can see them here if you are interested: http://www.pbase.com/jeffryz

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09-17-2007, 09:37 PM	#3
Daedalus Lieutenant Commander Join Date: Dec 2002 Posts: 824	It's taxable if they get less too. If a bank forecloses on a home, they have to take it back and they then sell it. If they accept less than the current loan balance, they have to forgive that debt. However, the debt forgiveness is considered income in the IRS' eyes. So if you did a crazy 100% loan at the peak of the bubble and you still owe $500k, and the bank forecloses and sells the home for $400k, you are assessed taxes on $100k of income. The good thing (for irresponsible homeowners) is that a lot of banks are failing to issue 1099 forms, which means a lot of people are walking away without any penalties whatsoever.

09-18-2007, 05:31 AM	#4
johnnymk Chief of Naval Operations Join Date: May 2000 Location: LEVITTOWN< PA> USA Posts: 13,621	This definitely occurred in the early nineties when prices dropped or remained stagnant in some parts of the country.

09-18-2007, 08:00 AM	#5
Chgoman Lieutenant Commander Join Date: Apr 2002 Location: Mission Viejo, CA Posts: 696	The banks may have been lax on 1099's in the past, but I'm sure that will change quickly with the number of forclosures and and even larger number of short sales that are occuring. The 1099 isn't only for the difference between what you owe and the sale price, but for the banks total loss on the property including non-paid interest and penalties, foreclosure costs, closing costs and realtor costs to sell the property, etc. It adds up quick.

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