Income Tax on Foreclosure Homes

10 01 2010

Imagine losing your home to a foreclosure and then getting socked with a big tax bill.

Distressed home owners who have their home foreclosed or sold as a short sale last year could get an unpleasant surprise from their mortgage companies in a form of 1099-C.

However, you are exempt from the tax if one of the following applies to you:

1) bankruptcy

2) insolvancy

3) debt is connected to your principal home and you used the money to buy, build or improve your home.

The exemption can be tricky if you use the home equity loan to pay for other things. In that case, you are not exempt from the tax.



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