March 14th, 2012 2:12 PM by Jennifer McGuire
During the past several posts, I have talked about short sales and the process of qualifying as a seller, as well as potential problems associated as a Purchaser.
Today I'd like to discuss some taxes a person could face if they get foreclosed upon, sell their home short, or any other act that might involve a "debt forgiveness".
There was a bill put into place by the government in 2007: The Mortgage Debt Relief Act.
THE MORTGAGE FORGIVENESS DEBT RELIEF ACT AND
DEBT CANCELLATION.
The first line for the government website on this act states: "If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable."
So many people think these funds owed the bank will just be written off. They figure it will effect their credit, but consider that a small price to pay, just to get away from the debt. What most people don't realize is some debt which is written off by the lender can be taxed by the IRS.
So, please check with your tax professional and attorney, and you might read the information available at the IRS website: http://www.irs.gov/individuals/article/0,,id=179414,00.html