Income Taxes After Your Home Foreclosure

You may have to pay income taxes after your home foreclosure.  Currently many can escape foreclosure with just the loss of their home.  Starting in 2013 foreclosed homeowners may also be paying taxes to the IRS on the forgiven debt.  Most tax debt is not dischargeable.

Current federal tax laws generally do not tax consumers for forgiven debt from home foreclosures.  The current law will expire at the end of 2012.  If the law is not extended, many consumers will pay federal income taxes on forgiven foreclosure debt.  Think paying taxes on an extra $30,000 to $100,000 of income.

Mortgage modifications were supposed to help.  I have seen very few success stories.  You make too much money or you make too little money. Sorry, but thanks for trying.

The only real mortgage relief is Chapter 7 Bankruptcy.  Take care of the mortgage debt.  Avoid paying taxes on forgiven debt.  Clean up your other debt at the same time.

The Bankruptcy laws have been around longer than the current tax law.  Rely on a remedy that has staying power.  If you are in a current foreclosure you need to act fast.  Contact a local Bankruptcy Attorney to learn more.  Don’t pay income taxes after your home foreclosure.

What is Forgiven Debt

Forgiven Debt, or debt forgiveness, is when your creditor gives up.  They charge off the debt and take the loss.  They report the loss on their tax returns.  Their loss becomes income to you.  The IRS will tax you on forgiven debt.

When you settle a debt for less than you owe debt is forgiven.  You will owe taxes on the amount of forgiven debt.