subject: Canceled Debt on Foreclosures is Taxable by I.R.S [print this page] Canceled Debt on Foreclosures is Taxable by I.R.S
More woes lay ahead for thousands of Americans who found themselves tied to a mortgage that they no longer desired, or were not able to pay. The foreclosure process was not the end to their troubles. Many homeowners were not aware that if they drew money on the equity of their homes during the housing market boom they can now be held liable for taxes on that amount as earned income.
State and federal agencies have long believed that an individual who drew money against the equity of their home was generating income, and that income needs to be taxed if the homeowner defaults on the loan. During the housing boom property values soared and homeowners used the equity in their home to send their children to college and take long desired vacations. The problem is that once the bottom fell out of the market and many Americans lost their jobs many of these homes fell into foreclosure with 2nd and 3rd mortgages attached to them.
CPA's across the country have seen a steady increase on these types of canceled debt taxation issues. Most of the issues have been tied to foreclosed properties, but there have also been some where individuals defaulted on credit cards and auto leases. The story is the same with credit card and auto lease loans. The borrower received goods that have never been paid for by the borrower. The I.R.S. addresses these issues as added earned income and applies the appropriate tax.
The I.R.S. estimates that 3.1 million Americans will file tax returns in 2009 that have some form of additional income from debt cancellation. The 3.1 million filers represent a 17% increase from 2007. The l.R.S. anticipates that the amount of fillings including debt cancellation 1099's will increase over the next couple of years. The shock of this reality has hit many unprepared defaulting borrowers. Financial advisers agree that before a borrower allows their loan to fail or if they are considering walking away from their home, they should seek advice from a certified financial planner.
welcome to Insurances.net (https://www.insurances.net)
