Foreclosures and Taxes Consquences
So you escaped the huge house payment and got out from under it, or so you thought. If you thought you had problems when you could not afford the mortgage, you will really have problems with the Internal Revenue Service.
There are many different ways you can owe the Internal Revenue Service when you foreclose on your house, we will only discuss a couple of the ways here. There were many people who bought their home under creative financing deals that the bank offered. When these loans adjusted, such as with the variable rate loans, it created disaster for the home owners.
If a bank takes your home or forecloses on it, you are responsible for the difference of what you owe and what the bank had to sell for it. So if you owed 50K on it and the bank had to sell it for 20K you will have a taxable difference of 30K, so homeowners really need to be careful about this.
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.
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.
Owners of homes should always consider the tax consequences before they give thier home back to the bank, it is never as easy as it seems, and by giving their keys back to the bank, they could end up having a huge tax bill at the end of the year.
There are many different ways you can owe the Internal Revenue Service when you foreclose on your house, we will only discuss a couple of the ways here. There were many people who bought their home under creative financing deals that the bank offered. When these loans adjusted, such as with the variable rate loans, it created disaster for the home owners.
If a bank takes your home or forecloses on it, you are responsible for the difference of what you owe and what the bank had to sell for it. So if you owed 50K on it and the bank had to sell it for 20K you will have a taxable difference of 30K, so homeowners really need to be careful about this.
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.
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.
Owners of homes should always consider the tax consequences before they give thier home back to the bank, it is never as easy as it seems, and by giving their keys back to the bank, they could end up having a huge tax bill at the end of the year.
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7:27 AM
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