IRS Launches Special Website Section For People Facing Foreclosure

The IRS has launched a special section of its website aimed at helping people who are facing foreclosure navigate the tax issues that surround debt forgiveness.

If debt is discharged and the amount totals more than what the home was worth, the difference is normally considered taxable income. The good news is that there is an exception to the rule for those who are really, truly broke.

From the IRS:

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. By law, this form must show the amount of debt forgiven and the fair market value of property given up through foreclosure. Though the winning bid at a foreclosure auction is normally a property’s fair market value, it may not necessarily reflect its true value in some cases.

The IRS urges borrowers to check the Form 1099-C carefully. They should notify the lender immediately if any of the information shown on their form is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home (Box 7).

Say, for example, that you’ve been foreclosed on and your home has a market value of $100,000. If you were forced to give the home back to the bank, they may have valued your home at something ridiculous like $1. This will leave you with an unreasonable and inaccurate tax burden. Check out the IRS website for more information about this issue. And just for good measure, here’s a basket full of kittens.

Special Web Section Unveiled for Homeowners Who Lose Homes; Foreclosure Tax Relief Available to Many[IRS]
Questions and Answers on Home Foreclosure and Debt Cancellation [IRS]
(Photo:Getty)

Comments

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  1. samurailynn says:

    I’m sure that if everyone had a basket full of kittens, there would be a lot less foreclosures to worry about.

  2. cde says:

    @samurailynn: Or more considering the burden of buying kitty food and litter.

  3. SaveMeJeebus says:

    @cde: Especially if everyone had to get their receipts checked at the door.

  4. cde says:

    @SaveMeJeebus: Dont forget to factor in the ChinesePoisonTrain kittyfood.

  5. crashman2600 says:

    I’m sure the IRS just wants to make sure they get their 2 cents out of someone who has no money left.

  6. robotprom says:

    anyone facing this possibility needs to look into how to plead insolvency to the IRS. That’s a way you can avoid paying taxes on forgiven debt.

  7. Roundonbothends says:

    Gee, a foreclosure is a FORGIVEN debt? Don’t they take the house away? Sounds like Republican forgiveness, doesn’t it?

  8. Trai_Dep says:

    What a great picture. Box of kittens!

    I’m going to print out a hard copy and scare my couch with it when it gets ornary.

  9. hoosier45678 says:

    @Roundonbothends:
    You’re missing the part where the lender lost the difference between what they got at auction and what they loaned you (assuming you’ve got negative equity). They’ve given up on chasing you down… hence “forgiven.” I can assure you they’d rather you pay your bills than foreclose for a loss.