By JC Leahy, MA Accounting
Twitter@TaxHelpWhenNeed
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The income tax problem for the down-and-out property owner is twofold: First, when the bank repossesses your house – whether your home or your rental property – the tax law views that as a SALE of the house. Viewing a foreclosure as a sale can crush you with big capital gain tax, especially if you have owned the house for a long time. The second problem is that after you lose your house and the bank sells it at auction and the paltry proceeds don’t satisfy the mortgage – if the bank doesn’t come after you for the unpaid mortgage balance, the Internal Revenue Service views that as a big windfall for you – which means income that is fully taxable. In summary, not only do you get to lose your house, but in the process you may realize a big capital gain and a huge windfall called Cancellation of Debt income. Obviously this could produce a giant income tax liability. Sigh….I kid you not!! So pay close attention when you receive a 1099-A or 1099-C in connection with a foreclosure.
WHAT TO DO WITH A 1099-A
