Tax help for home-foreclosure victims

The nation is undergoing a wave of record home foreclosures. While the Asheville area is fairing better than many areas of the country, the problem remains all too real for many in the area. Unfortunately for foreclosure victims, the loss of a home is only one problem. In many cases, foreclosure means a potentially severe federal-tax liability. So it’s important to know what penalties apply — and what forms of relief are available.

In a bid to help, the Internal Revenue Service has unveiled a special new section on its Web site for people who have lost their homes due to foreclosure. The IRS also reassures homeowners that, although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes.

The new section of IRS.gov includes a variety of information, including a worksheet designed to help borrowers determine whether any of the foreclosure-related relief provisions apply to them. For those taxpayers who find they owe additional tax, it also includes a form they can use to request a payment agreement with the IRS. In some cases, eligible taxpayers may qualify to settle their tax debt for less than the full amount due using an offer-in-compromise.

Under the tax law, if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets.

— Hal L. Millard, staff writer

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5 thoughts on “Tax help for home-foreclosure victims

  1. Sarah Brown

    To help prevent foreclosure, OnTrack Financial Education & Counseling (formerly CCCS), WNC’s trusted non-profit source for financial education and counseling, offers free one-on-one Foreclosure Prevention counseling sessions. OnTrack also offers a loan program for applicants who are at risk of losing their home or becoming late on payments because of an employment lay-off or loss of income due to changing local economic conditions. Call 828.255.5166 or 1.800.737.5485 for more information.

  2. dave

    Tim,

    So, in other words, the “housing boom” was by-and- large, artificially created to extend a spending boom. Although the dollar has been in trouble since early 2001, and hit even more troubles after Sept. the 11th of that year, the stock market, and vicariously, our entire economy, was propped up by a manufactured ‘housing boom’ that kept people spending on homes, home-repair projects, and all the offshoots of these industries.

    Now that this has finally ‘burst’, we are beginning to see the train light at the end of the tunnel, as our economy and the dollar drop to new lows.

    Am I getting this right?

  3. “Am I getting this right?”

    Yes. Pretty much. A housing bust is inevitable because the artificial credit expansion stimulates a boom of “malinvestments” whose payments come due during the downturn.

  4. travelah

    Let them eat cake … what in hell is wrong with people? If somebody takes out an ARM and their interest rate goes up, PLEASE, somebody explain to me why that is a cost to be carried by my tax wallet??? Will I get a check in the mail when rates go down????

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