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.
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.
The tax rate for any of the cancellation of debt is whatever your tax rate happens to be, anywhere from 10% to 35% depending on your tax bracket. Tax law mandates that the homeowner actually sells back their home to the bank with the proceeds going to the bank for their indebtedness.
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. - 16928
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.
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.
The tax rate for any of the cancellation of debt is whatever your tax rate happens to be, anywhere from 10% to 35% depending on your tax bracket. Tax law mandates that the homeowner actually sells back their home to the bank with the proceeds going to the bank for their indebtedness.
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. - 16928
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