Foreclosure Bringing Along Tax Bill

People facing the consequences of foreclosure get a surprise in the form of a tax bill which indicates that they have received an additional income of $20,000. It seems to be nothing less than a miracle to receive an income that is not even earned by them. This is no gain in disguise; but a way to torture the already beleaguered homeowners. A number of homeowners have reported to the media about the problems associated with the existing tax policies.

Speaking to the media, thousands of homeowners said that they are not just bearing the brunt of foreclosure, but facing a tough time dealing with the problem created by taxation rules. The homeowners are of the say that those who tried to get rid of the deplorable condition by refinancing their home or selling off their house at a loss were badly hit by the tax bill. The homeowners are under duress as not only they have the fear of losing their home to the foreclosure but are also badly trapped in the dirty taxation scene.

The unfair tax policies are contributing towards worsening the situation for the homeowners. President Bush rendered his wholehearted support to Stabenow\’s mortgage relief act by the end of August. The problem lies in the fact that not many people are aware of the tax policies and the ways to deal with them. The issue of taxation is having far reaching consequences and is increasingly affecting large number of families. The problem is more evident in Michigan where the homeowners are finding it all the more cumbersome to cope with the slump in the housing markets.

Any homeowner in Michigan who loses his/her job has to vacate the house and sell it off at an amount $20,000 less than the sum of loan. In case the bank foregoes the amount of $20,000 which tends to happen in certain cases, it leads to the issuing of tax form 1099 that is usually reported as the income of the homeowner. The general rule that applies all over the States is that the forgiven amount of debt is considered to be a taxable income, says Bob D. Scharin, RIA senior tax analyst of Thomson Tax & Accounting.

The families who are unable to make their loan payment approach the bank and ask for what is known as a short sale in which the house is sold at a price lesser than the loan amount. The difference is waived off by the bank and treated as bad debt or perhaps forgiven debt. It is here that the homeowner receives a tax bill that hits him/her badly. There is a need to bring about modifications in the tax policy otherwise the situation will become worst.

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