Daily Real Estate News  |  August 21, 2007  |   Home Owners Fight IRS on Foreclosure Tax
When a home owner goes through foreclosure or a short sale, the Internal Revenue Service considers the amount of the loan that was forgiven to be income for the debtor. That bill can come as a sickening surprise for those who believed that they had finally crawled out from under debt.

Some people in this predicament are fighting the IRS — and winning. And even borrowers who still have to pay can negotiate lower payments with the IRS, tax experts say.

The first step is to get knowledgeable legal and tax help, advises Kurt Eggert, a professor at Chapman University School of Law. This is not the time to file your taxes on your own, he says.

In some cases, an experienced tax attorney may able to show that the original loan process was so flawed that the borrower is not liable for taxes at all. Or a borrower who can demonstrate that she is insolvent also may be able to escape the tax, too.

Source: The New York Times, Geraldine Fabrikant (08/20/07)