Tuesday, November 19, 2013
Watch Out: Principal Residence Debt Relief Tax Exclusion Expires 12-31-2013
"Generally, if you owe a debt to someone else and they cancel or forgive that debt for less than its full amount, you are treated for income tax purposes as having income and may have to pay tax on this income." This is how the IRS begins its discussion in Publication 4681 of your potential tax liability when you go through a debt cancellation, foreclosure, repossession, or abandonment.
When the debt is on your principal residence, there has been an important exception to this general rule ... an exception that is scheduled to expire December 31, 2013. It is number 21 on a list of 55 expiring federal tax provisions. (For the full list of these, prepared by the Congressional Joint Committee on Taxation staff, click here.)
If you owe substantially more money on your principal residence than it is worth, and you don't have the desire and the ability to continue making the required monthly payments, you may want to seriously consider getting out of the house now before 2013 ends and you possibly add a big tax bill to your pain.
Please give this some thought, and possibly take action after getting appropriate help.