Tuesday, September 18, 2007
Following up on my recent posts (here and here) on proposed relief for homeowners who otherwise would have discharge of indebtedness income under § 108 on the relief of mortgage debt as a result of a bank's foreclosure and sale of the home: the IRS yesterday issued a news release (IR-2007-159) unveiling a special section of its website 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.
The new section of IRS.gov includes a variety of information, including a worksheet designed to help borrowers determine whether any of the foreclosure-related relief provisions apply to them. For those taxpayers who find they owe additional tax, it also includes a form they can use to request a payment agreement with the IRS. . In some cases, eligible taxpayers may qualify to settle their tax debt for less than the full amount due using an offer-in-compromise. The IRS urges struggling homeowners to consider their options carefully before giving up their homes through foreclosure. Under the tax law, if the debt wiped out through foreclosure exceeds the value of the property, the difference is normally taxable income. But a special rule allows insolvent borrowers to offset that income to the extent their liabilities exceed their assets.