| As if a foreclosure on your home isn't bad enough, do | | | | primary one is you get to "deduct" the value of the |
| you realize there could be dire tax consequences? | | | | home from the debt. If the home is worth $400,000 |
| Fortunately, the IRS is taking steps to mitigate much of | | | | and you are relieved of $400,000 in debt, then |
| the double disaster. | | | | everything is a wash and there is no tax due. |
| Many have accused the IRS of speaking some foreign | | | | So, what happens if the home value is only $300,000? |
| language over the years. The goal of this, of course, is | | | | Do you now owe income tax on $100,000? Yes, but |
| to get the most amount of milk out of taxpayers with | | | | there may be an out. The IRS allows insolvent |
| the minimum amount of moo. The milk is money and | | | | taxpayers to reduce their tax by the total amount of |
| the moo is protest. One area where a lot of mooing is | | | | their debts compared to assets. If you have lost your |
| occurring is with the tax consequences of being | | | | home, you can certainly make an argument that you |
| relieved from the burden of a lot of debt. | | | | are close to or completely insolvent. |
| If you owe a large amount of money for something, | | | | Assuming you are stuck with some phantom income, |
| you probably don't think of it as income in any way. | | | | you may also want to consider the filing of an offer in |
| Well, the IRS does in one situation. If you are relieved | | | | compromise to mitigate the debt. An offer in |
| of a large amount of debt, the IRS views that relief as | | | | compromise essentially tells the IRS you owe a certain |
| a form of income to you and it expects you to pay | | | | amount and can't pay it based on your assets. Given |
| income taxes on it. | | | | the loss of your home, the IRS is known to be |
| In the case of homeowners facing foreclosure, this | | | | receptive to such arguments and greatly reduce any |
| can lead to disaster. If you owe $400,000 on a home | | | | tax due. |
| and lose it to foreclosure, you have been relieved of | | | | Losing your home to foreclosure is bad enough. If you |
| $400,000 in debt and your home. The IRS somehow | | | | have additional income tax problems, it is worth your |
| views this as a good thing and credits you with | | | | time to sit down with a tax expert and find out how to |
| $400,000 in income and expects you to pay tax on it. | | | | deal with it. |
| Now, there are some big mitigating factors. The | | | | |