Foreclosure Section New to IRS Website!
The Internal Revenue Service has taken steps to help American families facing foreclosure. This week, the IRS's website (irs.gov) launched a special page aimed specifically at foreclosure victims. For the many Americans with rising adjustable rate mortgages and who are defaulting on home payments, this is certainly welcome news.
The IRS informs homeowners that, while complicated and costly taxes may accompany foreclosures, there are special provisions that may relieve homeowners of these costs. The relief doesn't apply to every person facing foreclosure, though, and to help homeowners figure out if they qualify, the IRS has included a worksheet that will determine just that.
Qualified people can apply for a payment agreement with the IRS or, in certain instances, settle their tax debt for less than the total of what they owe. This latter method is known as an "offer-in-compromise."
Tax law dictates that, if foreclosure proceedings wipe out debt of a value greater than the property's value, the difference between the two is considered taxable income. This can present problems for borrowers who don't have the means to pay that tax. Luckily, there is a special rule that lets such borrowers counterbalance the excess foreclosure income to the extent that what they owe exceeds what they have.
Even with these special provisions, the IRS recommends that homeowners act cautiously, considering all their options before giving up their homes through foreclosure. And the government warns that the help available may be limited. In some cases-as when a home has been rented out or used for business-the relief may be completely unavailable.
Form 1099-C
Lenders present form 1099-C, a year-end statement, to borrowers whose debt is eliminated or reduced. The form is required to indicate both the total debt forgiven and the "fair market value" of the foreclosed-on property. Usually, "fair market value" of a property is considered its winning bid at auction, but sometimes other factors must be considered.
The IRS emphasizes the importance of checking the 1099-C form with care. Borrowers should contact lenders right away if any information on the form is inaccurate. Box 2, which shows amount of debt forgiven, and Box 7, which shows the value listed for their home, are of particular importance, adds the IRS.
Legally, lenders are required to send a copy of the 1099-C form to the government, so the IRS cautions them to make sure their data are correct. Much of the action taken by the IRS is based on the information in this form.
In most cases, borrowers will receive a notice from the IRS about any follow-up concerns. Questions should be directed to the phone number on the form.
Other new features
The new site also includes a FAQ section and several links to sites containing relevant information. For details, visit the site: http://www.irs.gov/.