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983 Mission De Oro

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call (530)244-0300

The Silver lining to a Foreclosure


With the number of home foreclosures on the rise, I thought it was about time for some good news for all of those who have recently lost their homes (or are about to).

After a home goes through foreclosure, it is sold at auction. Often the home sells for less than what was owed on it. The unpleasant surprise for many borrowers is that the difference between what was owed on the home and what the home actually sells for is considered taxable income to the IRS. For example, let's say you owe 300,000 on your home. The house goes into foreclosure and sells for $250,000. The IRS will add that $50,000 to your taxable income.

In the past, one of the only ways the tax could be avoided was to file for bankruptcy.

So here is the good news: President Bush signed a law late last year that excludes most mortgage debt that was canceled in 2007 from income taxes. It will also apply to homes foreclosed upon in 2008 as well as 2009. That means in plain English that the IRS won't be adding that $50,000 to your taxable income.

The legislation also applies to loan restructures, short sales, home equity loans and home equity lines of credit.

Of course, there are always exceptions to every rule. Home equity loans and lines of credit must have been used to build, buy, or improve your home. The law is also limited to $2 million in forgiven debt, and it's only good for your principle residence. To see if your unique situation qualifies under the Mortgage Forgiveness Debt Relief Act of 2007, see your tax professional or contact my office for a free consultation.

Courtesy of Amy Spencer-Martyn
Spencer-Martyn Law Offices
Redding, CA 96002
(530) 244-0300
www.redding-lawyer.com

This information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
Bankruptcy Attorney, Redding, CA
 

NEW LOCATION!
983 Mission De Oro

FREE Bankruptcy consultation in Redding...
call (530)244-0300



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