I am not a CPA or an accountant, so I don’t give out tax advice. However, I have compiled some information in regards to homeowner’s tax consequences for a short sale/ foreclosure event. These are some of the most common questions asked by homeowners.
If a homeowner has taken out a “home equity loan” (or aka, HELOC) loan and has received any cash out (even from a past refinance) to pay off unsecured debts, (i.e. credit cards, car loans, motorcycle or boat loan, etc…), the sum of that money maybe considered a “taxable event” aka mortgage debt forgiveness” by the IRS).
The “debt forgiveness” is calculated by deducting the original purchase price (or acquisition cost) FROM THE “NET LOSS” THE BANK INCURS after the home reverts back to the bank and is sold by their real estate division. Renovation Costs can be added to increase the base value…but in the case of an audit the proof is on the home owner and they must have all receipts. Continue reading ‘IRS Clarifies Shortsale Tax Consequences For Homeowners’ »