2007 09 01 Archive

By now I’m sure you’re aware of the high number of foreclosed properties and that number continues to grow on a daily basis. However, what you may not be aware of is the tax consequences if you are foreclosed on.

Under the current tax law if a homeowner incurs a loss on the sale of their home, that amount IS NOT tax deductible. Investors can deduct part of their loss against their income though. Another fairly unknown tax law is what happens when a home is foreclosed. If a bank is forced to sell your property for less than the existing mortgage, the difference is considered forgiveness of debt. The IRS views this “forgiveness of debt” as income to you, and as with any income, you’ll be required to pay taxes on that “income”. So after you’ve been foreclosed and your home has been sold, you can expect to receive a 1099C from the lender with the amount that was “forgiven”.

There has been talk about the president’s desire to do away with this tax on a temporary basis, but it’s uncertain if it would be retroactive. If you find yourself in this position, your best bet is to seek the advice of a tax professional.

Scott Epstein
RE/MAX Grand’s Team IllinoisRealEstate.com