The IRS and Foreclosures
If you think that the bank taking your house back gives you a free ride, think again. You did not escape the money you owed, guess what, it is now taxable by the federal government, otherwise known as the Internal Revenue Service. You still owe some money, so be 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.
A homeowner can owe taxes on a short sale when the bank forgives part of the balance or the debt is discharged. Homeowners should not think for a minute that cancelled debt is forgiven without tax consequences.
Tax rates can be from 10 to 35%, but it depends on the tax bracket of the indebted homeowner. It can vary greatly but tax law mandates that the owner actually sell back the house with the proceeds going back to the bank to cover their debt.
Any debt that was owed beyond what had been paid is considered to be cancellation of debt, and is always taxable by the Internal Revenue Service. Many homeowners have been given bad advice and think that discharge or cancellation of debt by the bank entitles them to a free gift that is not taxable, this is not the case and discharged debt is taxable.
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.
A homeowner can owe taxes on a short sale when the bank forgives part of the balance or the debt is discharged. Homeowners should not think for a minute that cancelled debt is forgiven without tax consequences.
Tax rates can be from 10 to 35%, but it depends on the tax bracket of the indebted homeowner. It can vary greatly but tax law mandates that the owner actually sell back the house with the proceeds going back to the bank to cover their debt.
Any debt that was owed beyond what had been paid is considered to be cancellation of debt, and is always taxable by the Internal Revenue Service. Many homeowners have been given bad advice and think that discharge or cancellation of debt by the bank entitles them to a free gift that is not taxable, this is not the case and discharged debt is taxable.
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.
About the Author:
Are you worried about losing your house and how it will effect your life? Visit our webiste losing your house Process to find out more information.
posted by Debt Consolidation Loan at
7:31 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home