Forclosures: Be Aware of the Possible Tax

CAN THE IRS TAX YOUR LOSS?

A lot of homeowners today are deciding to walk away from their house that is loosing value. You should be aware of the possible tax implications if you do a foreclosure. The IRS can consider the cancelled debt as a form of income and tax you on that in some cases. While debt used to buy or build a home might be exempt, debt from a cash-out refinance that was not used for the house is not. So if you took cash out of your home to fund your child's college tuition, buy a car, take a vacation or pay off credit card debt then that part of the mortgage might be taxable as income. It is always best to check with a real estate attorney or accountant before walking away from a mortgage that you might be upside down on before walking away from the house or even doing a short sale. I am always in favor of being aware of all the consequences before you take action.