We've been lucky in Santa Clara County next to the rest of the country...and not just for our weather! The number of so-called "short sales" (property sales where the selling price is less than the loan amount) and foreclosures has been much lower than elsewhere. But we should still be wary of an unexpected tax consequence.
If the mortgage holder forgives part of the money owed, or less is collected on a foreclosure sale than is owed on the loan, the IRS considers this amount to be taxable income, even though no money is received by the homeowners, and they may already be in a bad situation financially.
There is a bill currently before the House Ways and Means Committee (HR 1876) that would exclude debt forgiveness on a principal residence from the tax code. This would be a major boon to former homeowners who have probably lost thousands of dollars in equity already.
If the mortgage holder forgives part of the money owed, or less is collected on a foreclosure sale than is owed on the loan, the IRS considers this amount to be taxable income, even though no money is received by the homeowners, and they may already be in a bad situation financially.
There is a bill currently before the House Ways and Means Committee (HR 1876) that would exclude debt forgiveness on a principal residence from the tax code. This would be a major boon to former homeowners who have probably lost thousands of dollars in equity already.
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