America’s housing crisis shows no signs of going away. Over the past few years, countless people have lost their homes to foreclosure or short sale. To make matters even worse, foreclosure may bring on another unforeseen issue: income tax for the cancellation of debt.
Any foreclosure or short sale involves the cancellation of debt. According to the IRS, the cancellation of debt is often a taxable event and must be reported as income. Cancellation of debt can result in hundreds of thousands of dollars in taxable income. Many foreclosures, however, are exempt from this requirement.
In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act. This exemption applies in the following situations:
- Debt incurred to purchase, build, or improve your principal residence
- This debt must be secured by the home
- Up to $1 million ($2 million for joint filers) in mortgage debt
- This exemption is scheduled to expire at the end of 2012.
The exemption does not apply to investment properties, second homes, or vacation homes, so the foreclosure of these properties can result in a significant tax burden. Our law firm has a comprehensive tax practice and is prepared to advise you of the various tax advantages and disadvantages of foreclosure or short sale.If you are facing the loss of a property and want to minimize the potential tax consequences, it is important to consult with a knowledgeable tax attorney. The McCauley Law Offices provides knowledgeable counsel to minimize the potential tax issues associated with foreclosure.
Contact the Tax Lawyers at the Law Offices of Gregory M. McCauley for their counsel today.
If you wish to discuss the tax implications of the disposal of your property, call us today. The law firm has its main office in Pennsylvania but we represent taxpayers all over the country.
Call immediately to schedule an initial consultation or discuss your case right away 610-388-4474. It is confidential and privileged.