If you think that you can escape the IRS when you decide to foreclose on your house, think again, there can be huge tax disadvantages to letting your house go back to the bank, it can mean thousands of dollars you could owe to uncle Sam.
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.
When a bank forecloses on your property and sells it for less than what you had originally owed on it, then you are responsible for the difference, which is taxable.
The Internal Revenue Service considers any loan amount forgiven as cancellation of debt and is taxable as regular income. The Internal Revenue Service says that debt discharge or cancellation is fully taxable as regular income. Homeowners really need to be aware of this before they consider foreclosure.
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.
Any of the debt owed beyond what was paid is cancellation of debt income, which is always taxable. Many homeowners, after some advice of a loved one or someone they trust, wrongly think they will not have to pay the IRS for their discharged debt, which is not the case.
The tax consquences should always be considered when turning your keys back into the bank, it is never as easy as it seems, and homeowners could potentially get a huge tax bill at the end of the year if they are not careful.
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.
When a bank forecloses on your property and sells it for less than what you had originally owed on it, then you are responsible for the difference, which is taxable.
The Internal Revenue Service considers any loan amount forgiven as cancellation of debt and is taxable as regular income. The Internal Revenue Service says that debt discharge or cancellation is fully taxable as regular income. Homeowners really need to be aware of this before they consider foreclosure.
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.
Any of the debt owed beyond what was paid is cancellation of debt income, which is always taxable. Many homeowners, after some advice of a loved one or someone they trust, wrongly think they will not have to pay the IRS for their discharged debt, which is not the case.
The tax consquences should always be considered when turning your keys back into the bank, it is never as easy as it seems, and homeowners could potentially get a huge tax bill at the end of the year if they are not careful.
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