Foreclosure can impact you in a lot of different ways. Something you might not consider as you’re going through foreclosure is how it could impact your taxes in the future.
When considering everything that foreclosure can change, it’s important to consider what could happen after foreclosure and how it could impact your taxes. Foreclosure could have major impacts on your future.
A foreclosure lawyer can help you through the foreclosure process and explain how it works and what it could mean for you. Working with an attorney can help make sure that you’re up-to-date on any foreclosure updates.
Joshua Denbeaux is an experienced New Jersey foreclosure attorney committed to fighting for homeowner’s rights. Contact Denbeaux Law today to learn more about the foreclosure process and how we may be able to help you.
Selling a Home
Anytime you sell a home, there could be tax implications. You should consider any capital gains and determine if you owe any taxes. This includes when you have to sell a home because of foreclosure-related issues.
The IRS views short sales and foreclosures like a sale. This could mean that if your home is foreclosed on or sold in a short sale and your lender cancels any of your outstanding mortgage balance, you may have to recognize ordinary income on your taxes.
Taxes and Short Sales
A short sale is when your lender allows you to sell your home for less than your outstanding mortgage balance to avoid foreclosure, and your lender cancels your obligation to repay the remainder of the loan. In some cases, mortgage debt cancellation can be taxable as ordinary income.
Any debt your lender cancels because of a short sale is taxable if your mortgage terms hold you personally liable for the full loan amount. Usually, there aren’t capital gain issues with a short sale because you most likely won’t make any money from selling your home in a short sale.
Regardless of the tax consequences, your lender will report the debt cancellation in a 1099-C form. You’ll have the information on this tax form if you need anything to file for your taxes.
Taxes and Foreclosures
In a foreclosure, a mortgage lender takes possession of a home after an extended period of missed mortgage payments. In many cases, lenders will cancel the outstanding mortgage balance when a property is foreclosed on. Sometimes, this debt cancellation is taxable as ordinary income.
When foreclosure includes the cancellation of debt, you typically only have an obligation to report it as ordinary income if you were personally liable for the entire mortgage. Your lender will file a 1099-C indicating if you need to report the debt cancellation as ordinary income.
You may need to calculate capital gains as a result of foreclosure. To calculate capital gain, you need to find your tax basis. This is generally the purchase price of a home plus the cost of any home improvements that you made. Once you’ve found your tax basis, you can subtract that from the home’s fair market value to determine if you need to report capital gains.
Contact a Foreclosure Attorney
Going through the foreclosure process can be difficult and stressful. Tax implications after a foreclosure or short sale are probably the furthest thing from your mind, but it’s important to understand what they could mean for you.
A foreclosure attorney can help you through the foreclosure process and explain any potential future implications of foreclosure.
Contact Joshua Denbeaux today to learn more about how we may be able to help you.
