Tuesday, May 29, 2012

Will I owe taxes on a short sale or foreclosure?

I am a bankruptcy attorney in Phoenix ($995/Chapter 7) and frequently deal with client issues involving short sales, foreclosures and mortgage loan modifications. One situation that arises frequently is whether clients will owe taxes on a short sale, foreclosure, deed in lieu or foreclosure, or loan modification. Even if the lender doesn't come after them for the difference in value, will the IRS, labeling it as income that must be taxed? To deal with the impending real estate crisis, Congress passed the Mortgage Forgiveness Debt Relief Act in 2007. It exempts from taxation certain debt forgiveness involved with losing your home - but not all. The home must be your primary residence (you must have lived there for at least 2 consecutive years within the past 5 years), and the loss must have been for buying, building or improving your home. Home equity loans or cash-out mortgage refinancings only qualify if they were used to make improvements. The maximum amount that may be forgiven is $2 million for a couple or $1 million for a single person.

If you don't qualify for the exemption, filing bankruptcy will eliminate the IRS debt. If you're seen as insolvent, the IRS cannot impute income to you.

For more information, click here and here.

The Alexander Bankruptcy Law Firm provides low low cost Chapter 7 and 13 personal bankruptcies. $995 Chapter 7 or $2500 Chapter 13 bankruptcies plus court filing fee. Free consultation with a compassionate attorney who will handle your case personally. Call 24/7, available to meet with you around your schedule. 602-910-6812. Conveniently located in Central Phoenix along the Camelback corridor.

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