Foreclosure Rule May Help Some Avoid Tax Penalty
The Sept. 17 editorial, "Stop adding tax penalty to mortgage foreclosure," missed a huge point.
I agree with Sens. Debbie Stabenow, Carl Levin and George Voinovich and President Bush in their efforts stop the Internal Revenue Service from taxing debt forgiveness on a primary residence.
However, the IRS has a rule that allows many homeowners in foreclosure to avoid the tax penalty.
If homeowners are insolvent (and most in foreclosure are), they can file form 982 with the IRS and avoid paying tax on the forgiven debt.
Of course, any homeowner should check with their certified public accountant as there are nuances to this rule.
Our company has worked extensively to educate homeowners on their options when they fall behind in payments.
The very first thing homeowners should do is contact their lender and attempt to work out a payment plan.