If I’m currently going through a foreclosure, how much my tax bill will be from the IRS once the process it complete?

Get Legal Help Today

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

If I’m currently going through a foreclosure, how much my tax bill will be from the IRS once the process it complete?

Asked on November 18, 2011 under Real Estate Law, Ohio

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

In the past a foreclosure typically would have generated taxable income based on the amount that the sale proceeds were short of what was owed (i.e. deficiency).  The IRS treated forgiven debt as taxable income, subject to regular income tax.  However, pursuant to "The Mortgage Debt Relief Act of 2007", taxpayers are generally allowed to exclude income from the discharge of debt on their principal residence (investment property does not qualify).

Under the Act, debt that is forgiven in connection with a foreclosure, will qualify for this relief. The Act applies through years 2007-2012. Eligible for the exclusion is forgiven debt up to $2 million ($1 million if married filing separately). However, the exclusion doesn't apply if such debt is for services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. 

 Here is a link to the IRS site that will give further details:  http://www.irs.gov/individuals/article/0,,id=179414,00.html

At this point, you should consult with an accountant in your area for further information.


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption