Even the most responsible people can fall on hard financial times. Unfortunately, this endangers your ownership of the home you have worked so hard to buy and maintain.
If you have found yourself in an unexpected financial situation, the last thing you should do is bury your head in the sand and proceed as though everything is normal. It is best to sell your home and walk away with some of your hard-earned money than to face foreclosure.
If your tough life circumstances have kept you from maintaining your home the way you’d have liked, don’t worry! We buy homes in any condition in Tampa, FL, letting you walk away with a better credit score than a foreclosure would leave you with, the privacy that foreclosure doesn’t provide, and some cash to start over.
In Part 1 of this three-part article, we talked about the major credit score consequences associated with foreclosure. Today in Part 2, we will cover the unexpected tax consequences. You can also read ahead to Part 3, in which we’ll discuss the emotional consequences of foreclosure.
A foreclosure is a hard time in a person’s life. They may not realize that the foreclosure is actually taxable. When you think about it, having debt forgiven (even if it comes with a slew of consequences, like a lowered credit score and losing your home) is technically a gift from your lender.
A foreclosure typically happens when a person has not worked with their lender and simply allowed the situation to unfold. Eventually, the bank takes your home, and in a lot of cases, they forgive the remaining balance.
While the word “forgive” may imply that everything is said and done, this is not the case. In the eyes of the IRS, this forgiven debt sometimes counts as income, in which case it is taxable. If your foreclosure includes a cancellation of debt, your lender will send you a 1099-C that reports the amount they have forgiven you. You also need to calculate the capital gain resulting from the foreclosure.
If you are already struggling financially, the tax consequences of a foreclosure can be the nail in the coffin of your hardships. It is best not to suffer through paying extra taxes after going through one of the hardest life situations a person can experience.
One of the reasons we buy homes in any condition in Tampa, FL, is to protect you from foreclosure and all the added hardships most people never realized come with it.
For more information about selling your home, please submit our contact request form.
Disclaimer: This website is not a substitute for legal advice. If you have a serious legal, tax, or other issue requiring professional advice, please consult with an attorney or CPA.