Generally speaking, the Internal Revenue Service (IRS) treats a foreclosure as a home sale, with any forgiven debt treated as regular income. Reporting a gain or a loss on the sale/foreclosure will depend on whether you are personally liable for the debt (which is normally determined by state law where the property is located). There are exemptions and state laws to take into consideration as well, so you should consult with a qualified tax adviser or tax attorney in your state and find out how they apply to your specific situation.
I will provide you with resources that should help educate you on foreclosure, taxes, and instructions on 1099-A forms. This may help you to head into your meeting with your tax advisor or attorney with some understanding of the basics involved.
- The IRS Web site contains the FAQ Home Foreclosure and Debt Cancellation. This document contains examples and instructions for completing your tax forms if you experienced a foreclosure.
- See the IRS document explaining The Mortgage Forgiveness Debt Relief Act and Debt Cancellation, which allows taxpayers to exclude income from the discharge of debt on their principal residence.
- See the IRS Form Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness.
- See the IRS Publication 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments.
- See the IRS document Instructions for Forms 1099-A and 1099-C to learn more information about the 1099-A.
I hope this information helps you Find. Learn & Save.