Owners who refinanced may owe IRS
People who cashed out refinances, or had part of their mortgage debt forgiven when they sold their homes through short sales, will probably owe the IRS a big payback.
In 2007, Congress passed the Mortgage Forgiveness Debt Act, but that doesn’t let everyone off the hook.
Here are exceptions to the rule:
- Anyone who did a cash-out refinance and spent the money on something not housing related, then got in trouble and lost their home to a foreclosure or short sale, will owe the IRS as if the money from the refinance were earned income.
- The IRS will forgive tax liability only on money from home-equity loans that was spent to improve the property.
- Anyone who lost a vacation home or investment property to foreclosure or short sale will owe Uncle Sam.
- Multi-million dollar homes — lost or sold — are always subject to tax.
Source: CNNMoney.com, Les Christie (04/08/2010)
