Saturday, September 22, 2007
IRS offers tax info for homeowners facing foreclosure
To help homeowners facing foreclosure, the Internal Revenue Service has recently created a special section on its Web site. IRS officials said although mortgage workouts and foreclosures can have tax consequences, special relief provisions often can reduce or eliminate the tax. The agency's Web site at irs.gov now has information, including a worksheet to help borrowers determine whether any of the foreclosure-related relief provisions apply to them. Those who owe additional tax will find a form to request a payment agreement with the IRS. In some cases, taxpayers may qualify to settle their tax debt for less than the full amount. If the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income, according to the IRS. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets. However, relief may be limited or unavailable in some situations such as if part or all of a home was used for business or rented out. Borrowers whose debt is reduced or eliminated should receive a year-end statement, Form 1099-C, from their lender showing the amount of debt forgiven and the fair market value of property given up through foreclosure.