IRS Develops Home Foreclosure Web Page

IRS Foreclosure Web Page and FAQs

The Internal Revenue Service upgraded their home page information about the tax consequences of mortgage foreclosure--at once reminding participants in foreclosures that the foreclosure could be a taxable event while noting that there are some circumstances that may keep the taxpayer from tax liability. A worksheet on the new IRS page allows the taxpayer to estimate tax impact--but also indicates availability of deferred payment options and offers in compromise. Additional, insolvent taxpayers (those with liabilities in excess of assets) avoid tax liability to the extent that insolvency exceeds the amount of net debt forgiveness (debt avoided less market value of house lost). The IRS announcement also emphasizes the importance of lenders providing accurate 1099-Cs to former homeowners.

While greed of both lenders and borrowers helped create the "subprime" mess, the fallout has potential ramifications for the U.S. economy as a whole. The IRS has done a good job in clarifying the responsibilities of both foreclosure participants and lenders here.