Most homeowners can avoid a big tax bill if their home is sold for less than they owe on it, but others aren’t as fortunate.
Q We were foreclosed upon last summer, and the lender sold the place for about $75,000 less than we owed. How do we deal with this when we begin filling out our 2011 tax return? One friend says the Internal Revenue Service will consider the $75,000 in forgiven debt as “income” to us and that we’ll have to pay taxes on the amount (even though we didn’t earn it), but a real estate agent I talked to says no taxes will be owed. Who is right?
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