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Millions were made in the real estate market earlier this decade. Now, millions are being lost. The availability of easy money in the form of mortgages is reaping a bevy of foreclosures and their are major tax consequences to foreclosures. You might say it is sunny outside. The IRS, however, would say there is simply a lack of darkness. The same goes with debt. The IRS views the waiver of a debt as a form of income to a taxpayer. Stay with me on this one. Okay, lets call it a given that I am a proud homeowner. I own a single family dwelling and owe $300,000 on the property. My hybrid loan starts adjusting and I go into default on the loan. The lender eventually gets a court order booting me out. I have lost the house and my credit is a disaster. That being said, however, I am off the hook for the $200,000. Life could be worse, right? Well, it is about to get much worse. The IRS is very interested in that $200,000 mortgage debt. Why? How could I possibly get into tax trouble since it is a debt? Well, the agency takes the view that the relief from that debt can actually be considered income to me. Night is day, day is night. This is how the IRS views the situation. The fact i don't have to pay back $300,000 doesn't mean I have any more money to my name, but the IRS doesn't care and, oh, it wants me to pay income tax on it. Watch the news for five minutes and you know what is going on in real estate. Values are down, interest rates are up and so are foreclosures. Thousands of peopel are running into this tax situation, even if they short sale their properties. So, is there anything you can do? Yes. The key is to get an appraisal of the home before you are foreclosed on. This is important as you are taxed on the difference between the value of the home and what you owe. Attorneys and accountants are also having some succes with certain arguments. The IRS has proven receptive to the idea that the taxpayer is insolvent and can't meet the tax obligation. In such cases, the agency will terminate the tax due. Taxes are not generally dischargable in bankruptcy, but they can be in this case. If you can get no relief from the IRS, a bankrupcy court may terminate the underlying mortgage debt. Without any debt, there can be no gain or tax on it. Suffering through a foreclosure is absolutely no fun to say the least. Adding a potentially large tax bill to the process is even worse. As more people face this problem, one has to hope the IRS will change direction.
Article Source: http://www.realestateinvestmentarticles.net
Richard Chappoe is with BusinessTaxRecovery.com - providing expert tax debt relief today from those back taxes that have been haunting you.
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