How to Get Foreclosure Tax Relief

Contents

Introduction ..…………………………...1

America Tax Laws………..……….…...2

Form 1099-C…………………..………….2

Assets and Liabilities………………....2

Payment agreement…….………......3

If you borrow money from somebody and do

not repay some or all of it, then the Internal

Revenue Service says that you received an

income, and as we know, they tax all incomes

too. This has undesirable side-effects for

those whose homes are foreclosed because

they also have to pay tax on the experience

too. This is not always necessary, though.

Here is how you might be able to avoid it.

American Tax Laws

2

American tax law says that when a debt forgiven in

foreclosure exceeds the fair market value (FMV) of the

mortgaged house, then the difference is income, and

therefore taxable. That is because the borrower “received” a

greater benefit than they would have if they had sold the

house themselves.

What’s does that mean?

For more terms and definitions, check out ForeclosureDeals.com’s glossary page: http://www.foreclosuredeals.com/Glossary.php

Your lender is obliged to provide you with a Form 1099-C on

which the debt forgiven and the FMV both appear. If your

home has already been auctioned, the FMV will be the sale

price. If not, your lender may have indicated a higher estimate.

This is one good reason not to let things like this drag on – if

you are lucky, the estimated higher FMV could be to your tax

advantage. In either case, determine whether the foreclosure

resulted in a "taxable income” or not.

Form 1099-C

Assets and Liabilities

You may offset any negative net worth against a “profit” on a

foreclosure. This is easy to calculate too. Simply estimate the

value of your total assets (car, television, clothes etc) and

compare this with the total of your outstanding debt. If the

result is a negative value, this can come off your “taxable

foreclosure income” too, potentially helping you to manage

your foreclosure tax obligations even more.

3

Foreclosure Deals

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If your calculations fall to your advantage, contact the

Internal Revenue Service right away. If you still owe

“foreclosure income tax”, that could be a good opportunity

to negotiate a further reduction in your overall tax liability.

Payment Agreement