Foreclosures and Taxes Consquences
If you think that you can escape the IRS when you decide to foreclose on your house, think again, there can be huge tax disadvantages to letting your house go back to the bank, it can mean thousands of dollars you could owe to uncle Sam.
We will discuss the different ways you will owe the IRS in detail later on. Many homeowners bought their house under liberal financing terms such as interest and variable rate loans. These loans have become a liablity for many banks as the rates adjust and people cannot make the new payment.
The difference between what you owe on your mortgage and what the bank has to sell it for is called a short sale. Short sales are becoming widespread as many people are losing their homes to foreclosure. The difference in the two numbers is usually taxable.
The Internal Revenue Service considers any loan amount forgiven as cancellation of debt and is taxable as regular income. The Internal Revenue Service says that debt discharge or cancellation is fully taxable as regular income. Homeowners really need to be aware of this before they consider foreclosure.
The tax rate for any of the cancellation of debt is whatever your tax rate happens to be, anywhere from 10% to 35% depending on your tax bracket. Tax law mandates that the homeowner actually sells back their home to the bank with the proceeds going to the bank for their indebtedness.
Many homeowners have been wrongly informed that debt discharged by the bank is not fully taxable, when in fact it is. They have been given, often times, bad advice by a loved one or someone else who does not know the law, but they will need to pay the IRS for the discharged debt at their current tax rate.
The tax consquences should always be considered when turning your keys back into the bank, it is never as easy as it seems, and homeowners could potentially get a huge tax bill at the end of the year if they are not careful.
We will discuss the different ways you will owe the IRS in detail later on. Many homeowners bought their house under liberal financing terms such as interest and variable rate loans. These loans have become a liablity for many banks as the rates adjust and people cannot make the new payment.
The difference between what you owe on your mortgage and what the bank has to sell it for is called a short sale. Short sales are becoming widespread as many people are losing their homes to foreclosure. The difference in the two numbers is usually taxable.
The Internal Revenue Service considers any loan amount forgiven as cancellation of debt and is taxable as regular income. The Internal Revenue Service says that debt discharge or cancellation is fully taxable as regular income. Homeowners really need to be aware of this before they consider foreclosure.
The tax rate for any of the cancellation of debt is whatever your tax rate happens to be, anywhere from 10% to 35% depending on your tax bracket. Tax law mandates that the homeowner actually sells back their home to the bank with the proceeds going to the bank for their indebtedness.
Many homeowners have been wrongly informed that debt discharged by the bank is not fully taxable, when in fact it is. They have been given, often times, bad advice by a loved one or someone else who does not know the law, but they will need to pay the IRS for the discharged debt at their current tax rate.
The tax consquences should always be considered when turning your keys back into the bank, it is never as easy as it seems, and homeowners could potentially get a huge tax bill at the end of the year if they are not careful.
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posted by Debt Consolidation Loan at
7:37 AM
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