Upcoming Foreclosures

I live in Sparks Nevada, my house soon to go into foreclosure, what are the laws and my options?

Should I let the house go into foreclosure or should I do a bankruptcy? I don't want to owe the IRS. Please help me!

Public Comments

1. The bankruptcy will only delay the foreclosure, it won't prevent it. If you allow the house to go to foreclosure, the bank can still come after you for the deficiency. If it decides to write it off, it may consider it income to you and give you a 1099 form. Foreclosure will affect your credit (as will bankruptcy). Talk to the bank and see if you can do a short sale (you'd still owe the IRS).
2. I think you would owe the IRS even if you let the home go into foreclosure. It's not about making a financial gain on the property but rather debt forgiveness. Especially in the case of a refinance. If someone purchased a home for $200,000 and it appreciated to $300,000 and then they refinanced and pulled out $100,000 in cash they do not pay taxes on that money at the time of the refinance. However, once the property goes into foreclosure and the bank takes possession they will auction it off to the highest bidder at a foreclosure auction or, more likely, have to try to sell it themselves . You will not know the amount of your deficiency until the bank sells the property. If the bank sells the home for $250,000 then you'll owe taxes on the $50,000 deficiency. It makes sense because the homeowner had $100,000 to play with after the refinance and just because the debt was forgiven doesn't mean they don't owe taxes on that amount. Be sure to explore section 108 of the IRS code and IRS form 982. Perhaps you can avoid the taxes in either a short sale or foreclosure. You should definitely pursue a short sale as opposed to a foreclosure as the short sale with have less of a negative impact on your credit. Good Luck!
3. The Internal Revenue Service unveiled a special new section today on IRS.gov for people who have lost their homes due to foreclosure. The IRS also reassured homeowners that, although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes. http://communitydispatch.com/IRS_Tax_Tips_30/IRS_Update_Help_for_Homeowners_Who_Lose_Homes_Foreclosure_Tax_Relief_Available_to_Many.shtml