Home Foreclosures and Taxes
Tax bills never arrive at a good time. Some taxes arrive at the worst of times. The death tax is the classic example–that tax bill arrives immediately after your death. Now comes another taxable catastrophe–home foreclosures. According to this article in the New York Times, many taxpayers are discovering they own taxes on some, or all, of the value of their foreclosed house. This occurs when a lender forgives part, or all, of the mortgage on the foreclosed house. Depending on the value of the house, the loan forgiveness is taxable under the income tax–it’s called a 1099 shortfall. It is ironic that politicians are now clamoring for new laws to protect consumers from aggressive mortgage lenders, but they will not do the same for taxpayers from aggressive IRS agents.