Tax Tips |
New Section on IRS Web Site Offers
Foreclosure Tax Help
Foreclosure Tax Help
The IRS posted a new section on IRS.gov for people who recently lost their homes due to foreclosure.
Special relief provisions often reduce or eliminate taxes for borrowers who lose their homes.
The new Web site section includes a worksheet designed to help borrowers determine whether they qualify for any of the foreclosure-related relief provisions.
The worksheet outlines situations in which cancellation of debt income is not taxable, including the following:
The worksheet outlines situations in which cancellation of debt income is not taxable, including the following:
- Bankruptcy. Debts discharged through bankruptcy aren't considered taxable income.
- Insolvency. If you're insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You're insolvent when your total debts are more than the fair market value of your total assets.
- Farm Debts. If you incurred the debt directly in operation of a farm, more than half your income from the prior 3 years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
- Non-recourse Loans. This is a loan for which the lender's only remedy in case of default is to repossess the property being financed or used as collateral. Forgiveness of a non-recourse loan doesn't result in cancellation of debt income, but it may result in other tax consequences.
For those who find they owe additional tax, the new section also includes a form to request a payment agreement with the IRS. In some cases, eligible taxpayers may qualify to settle their tax debts for less than the full amount due using an offer-in-compromise.
Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lenders. By law, this form must show the amount of debt forgiven and the fair market value of property given up through foreclosure.
Borrowers should check Form 1099-C carefully and notify lenders immediately if any of the information shown on their forms is incorrect. They should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their homes (Box 7).
Lenders are obligated to provide accurate information on Form 1099-C. By law, the lender must send a copy of this form to the IRS. The IRS uses the contact information on the form along with taxpayers' federal income tax returns to follow up with the taxpayers involved in foreclosure.
Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lenders. By law, this form must show the amount of debt forgiven and the fair market value of property given up through foreclosure.
Borrowers should check Form 1099-C carefully and notify lenders immediately if any of the information shown on their forms is incorrect. They should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their homes (Box 7).
Lenders are obligated to provide accurate information on Form 1099-C. By law, the lender must send a copy of this form to the IRS. The IRS uses the contact information on the form along with taxpayers' federal income tax returns to follow up with the taxpayers involved in foreclosure.