Many may not realize this newer ruling of the IRS. If you lost your home to foreclosure, you may have to count the loss as income and pay taxes on it.
So you gave up to Foreclosure? The IRS may be on your heals!
If you are one of the thousands of homeowners that felt relief by allowing their homes to
become foreclosed on your relief may be short lived. Many of us became wrapped up in the
ability to use our homesteads as ATM machines and the banks were fine with it. Now, after the
money is spent and debt is rising you find that your home is not worth the amount you have
in it. Yikes! The job market has tightened and you may have even lost your livelyhood.
Or, you had a line of credit with the bank based on the equity in your home. You took a little
vacation, paid off a few bills, had a great December Holiday and "poof" your line of credit
was maxed out. Now you need to sell but can't get the amount owed on your property.
All this adds up to a potential foreclosure. Your bank may have accepted a lesser amount for
the sale of your home and may have FORGIVEN the balance of the note that was not paid. Yea!
Thank you friendly bankers. You knew we were trying and you have forgiven us.
You can opt to allow foreclosure or may be forced into it due to lack of funds. When the
house is gone you may feel better but the relief could be short lived.
Don't look back! The IRS may be following you to add to your debt...they will make you pay.
If you sold your home at a loss of 25% on a $100,000.00 debt the IRS would consider the amount
of the difference owed as income. Yes, Income.
The congress passed a bill in 2007 to
include forgiven debt without tax to mortgage loans.
That's the good news but here's the kicker.
Let's hope you used your EQUITY LOAN wisely.
This forgiveness only applys to the cash out that
went directly into the improvement of your property.
If you did go on a spending spree with vacations, cars, boats, or anything that did not
physically improve the property Uncle Sam will be at your doorstep.
You will have to pay the IRS on the borrowed money as if it were income.
If you took a home equity line of credit let's hope you bought carpet and countertops.
Any purchase other than a home related purchase will be taxed as income.
If you lost a property other than your homestead such as an investment property or vacation
or getaway property you will be paying too. Your only loophole here is if you can prove that
you lived in the said property for a minimum of two years.
Anyway, thanks for the forgiveness to the homeowners that actually TRIED to improve their homes.
Total forgiveness is a blessing...
even that forgiveness is due to change in 2012.
When you ask, "gee, can it get any worse?" Thank you Stu!
The answer is YEP!