You lost your house . . . now you owe taxes?

Posted Aug 20th 2007 11:00AM by Zac Bissonnette
Filed under: Newspapers, Scandals, Housing

Imagine this: you lose your home to foreclosure, like so many other Americans are right now. Then the IRS comes and tell you that you owe a third of the mortgage's value in back taxes.

According to The New York Times, homeowners whose lenders forgive a loan after the house is sold for less than the value of the mortgage are liable for income tax on the amount forgiven -- because it's sort of like a gift or something. What?

As foreclosure rates soar -- experts believes 20% of the subprime loans made 2006 will end up in foreclosure -- thousands of Americans will find themselves out of their homes, broke, and owing tens of thousands to the IRS.

Meanwhile, the private equity industry is lobbying against efforts that would require them to pay ordinary income taxes.

If KKR doesn't have to pay ordinary income taxes on the billions it makes, should people who lose their homes have to pay for the amount that is forgiven?

Tags: Foreclosure, Housing, IRS, Taxes

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Reader Comments (Page 1 of 1)

8-20-2007 @ 3:11PM

jim said...

not all cases of individual forgivness of debt ends up being taxable.

insolvency or debt discharged under bankruptcy are two examples of where the debt forgiveness may not taxable.

consult a tax professional though for more details/clarifications/reporting

8-21-2007 @ 11:56AM

mike said...

For a way for homeowners to minimize the income tax effect on real estate short sales, check out the following blog post at The Home Equity Theft Reporter:

Dodging The Income Tax On Foreclosure & Real Estate "Short Sales", link at:

http://HomeEquityTheft.blogspot.com/2007/06/dodging-income-tax-on-real-estate-short.html

Mike