Congress extends tax break for foreclosure victims

gaspe-cliff-lAs part of the settlement of the various fiscal cliff issues, Congress extended the rules for forgiving the tax consequences of foreclosures for homeowners.

Briefly, the tax code treats the forgiveness of debt as income for tax purposes — leaving debtors who have had their debt “forgiven” by a foreclosure sale liable for a whopping tax income bill on top of all their other problems.

A few years ago, this rule was waived in certain circumstances as a tsunami of foreclosures swept the nation. But the break was one of those set to expire with the fiscal cliff at year end.

Now its back — and extended into the indefinite future. Good news for debtor’s in financial trouble who may be facing foreclosures or considering bankruptcy. Just make sure you are familiar with the actual rules, which don’t cover second homes, re-financings, or rental property. People facing a foreclosure in those situation will still derive great protection from the bankruptcy code.

 

By Doug Beaton

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