Your IRS Debt - How to Avoid Foreclosure Debt
That's Not Good...
Government statistics are showing home foreclosures at an all time high.
Due to high mortgage rates, tons of people are foreclosing because they are paying more than the house is worth! And the worst part is, it doesn't look like it's going to get better anytime soon.
So how can you explain this to the IRS when it comes time for your tax return? Things are Tough All Over...
Most of the time, if you can't pay back the debt to the mortgage lender, the debt can be discharged.
Of course, this has had quite a negative effect on lenders.
With all of these Americans foreclosing on their houses, how could this process be practical? See the problem was, before 2007, any money left over on your house when you foreclosed, was required to be documented as income.
To the Rescue...
The Mortgage Debt Relief Act in 2007, stated that Americans that were affected by these situations, were not required to claim that extra amount of debt as income.
This was a wonderful way of relieving the added stress on home-owners as well as mortgage lenders.
But not everyone is just automatically granted the relief.
Here are some of the requirements:
To figure out if you owe the IRS, use this formula: Fair market value of the property - the purchase price of the property = X If X is a positive number, you have a gain.
If X is a negative number, you have a loss.
Gains must be reported as income.
Losses are not required to be reported, but the downside to that is, they can't be deducted.
Finally, Some Good News: The Mortgage Debt Relief Act has offered practical options for homeowners.
Now, no longer do you have to live in fear of the IRS.
Just make sure you're educating yourself on the facts, and as always...
Now you have the smoking gun...
Use it!
Government statistics are showing home foreclosures at an all time high.
Due to high mortgage rates, tons of people are foreclosing because they are paying more than the house is worth! And the worst part is, it doesn't look like it's going to get better anytime soon.
So how can you explain this to the IRS when it comes time for your tax return? Things are Tough All Over...
Most of the time, if you can't pay back the debt to the mortgage lender, the debt can be discharged.
Of course, this has had quite a negative effect on lenders.
With all of these Americans foreclosing on their houses, how could this process be practical? See the problem was, before 2007, any money left over on your house when you foreclosed, was required to be documented as income.
To the Rescue...
The Mortgage Debt Relief Act in 2007, stated that Americans that were affected by these situations, were not required to claim that extra amount of debt as income.
This was a wonderful way of relieving the added stress on home-owners as well as mortgage lenders.
But not everyone is just automatically granted the relief.
Here are some of the requirements:
- The foreclosuremust have been due to a direct decline in the value of the home
- Or the foreclosurehappened due to a change in finances.
- And of course thehouse had to been actually foreclosed on.
This is to say that if yousell the house and come up short, that money still must be written offas income.
To figure out if you owe the IRS, use this formula: Fair market value of the property - the purchase price of the property = X If X is a positive number, you have a gain.
If X is a negative number, you have a loss.
Gains must be reported as income.
Losses are not required to be reported, but the downside to that is, they can't be deducted.
Finally, Some Good News: The Mortgage Debt Relief Act has offered practical options for homeowners.
Now, no longer do you have to live in fear of the IRS.
Just make sure you're educating yourself on the facts, and as always...
Now you have the smoking gun...
Use it!
Source...