There Could Be Extra Financial Burden for Those Who Have Lost Homes

National Taxpayer Advocate Explains How to Avoid Being Trapped by Tax Rules

Story Summary:

THIS REPORT BROUGHT TO YOU BY THE TAXPAYER ADVOCATE SERVICE. ONE IN 10 HOMEOWNERS IS EITHER DELINQUENT ON THEIR MORTGAGE PAYMENTS OR IN THE PROCESS OF FORECLOSURE. AND UNLESS THEY FILE THE RIGHT TAX FORM, THEY COULD FACE INCREASED TAXES.

NINA OLSON, NATIONAL TAXPAYER ADVOCATE, INTERNAL REVENUE SERVICE:

"If your home has been foreclosed on, something you may not realize...is that the debt that is forgiven you is actually taxable income – unless another exception applies in the tax laws. And it's not just limited to home foreclosures. If a credit card has been cancelled and the debt is forgiven or your automobile is repossessed, all of those result in what we call cancellation of debt income."

TO HELP TAXPAYERS, CONGRESS PASSED LEGISLATION SPARING QUALIFIED HOMEOWNERS FROM PAYING TAXES ON THE CANCELLED DEBT, BUT THE BENEFIT IS NOT AUTOMATIC. TO QUALIFY, ELIGIBLE INDIVIDUALS MUST FILE IRS FORM 982, WHICH MOST PEOPLE DON'T EVEN KNOW ABOUT.

FOR MORE ON FORM 982 OR THE TAXPAYER ADVOCATE SERVICE, VISIT WWW.IRS.GOV/ADVOCATE.

I'M RACHEL FRANK.

AUDIO PROVIDED BY: "TAXPAYER ADVOCATE SERVICE"