Although I posted an article on this topic of tax debts after foreclosure on July 12, 2011, this question still comes up fairly frequently. Therefore, another blog post on it is in order. However, this one will not be a carbon copy of the July 12 post.
I. The Five Exceptions To Cancellation Of Debt …
When the foreclosure sale looms large, filing for bankruptcy protection prior to the sale date is probably the only smart move. It avoids the unpleasant post-foreclosure sale tax hit, and frees you from owing the bank anything.
Those of you who have followed these posts for a while know that I have predicted a new wave of residential and commercial foreclosures. I stand by that prediction, the residential portion of which has just been bolstered by a recent article by Don Lee in the Los Angeles Times:
Continue Reading Foreclosure And Bankruptcy: An Update
I. The Basic Idea: Cancellation Of Debt Income
Let’s first understand the basic idea with a simple non-real estate example. Suppose you owed me $100,000. I’m such a nice guy that I forgive the debt. It turns out that this becomes a mixed blessing because now the IRS and the Franchise Tax Board (FTB) both…
