Taxes on Foreclosed Homes

"Losing your house is bad enough. Owing Uncle Sam money in connection with your now-gone abode is the epitome of insult to injury," writes tax journalist Kay Bell over at Don't Mess With Taxes. Taxpayers who lose their homes might be left with a higher than expected tax liability. Debt canceled by lenders is considered taxable income. So if a lender forgives your credit card debt, home loan, or other debt, you will pay tax on the amount canceled. One exception is if the debt is canceled as part of a bankruptcy proceeding. Taxpayers may also have a capital gain, as Ms. Bell also details.

• Foreclosures and Repossessions (from IRS Publication 544)
• Canceled Debts (from IRS Publication 525)
• Capital Gains on Sale of a Home