San Diego CPA answers the Question: Is a foreclosure on my home taxable?

www.incometaxassist.com, 619- 567-2014 San Diego CPA Debbie Haverly founder of Income Tax Assist where we do an in-depth analysis of your unique situation and look for alternatives that will save you money with our tax services. In this video series, I'm going to answer some of my clients' most frequently asked questions. In today's video, I am going to answer the question: Is a foreclosure on my home taxable?
Each foreclosure is different, and the laws are different in each state, so there is no easy answer to this question. However, there is one important tip I want to give you today and that is that you want your home to be considered "your principal residence" under the tax code. Your principal residence is where you live most of the time. Your tax treatment is much more favorable if the foreclosure is on your principal residence.
Your foreclosure may result in taxable cancellation of debt income, known as COD income. It's important that you remain in your home until it is foreclosed because there is a special IRS code section (Section 108(h)) that will allow you to qualify for an exclusion for the COD income.
Depending on what type of loan you have and what state you live in, you may not have COD income. In that case the foreclosure will most likely result in a capital gain or loss. If you are still living in your home so it is considered your principal residence you can qualify for the $250,000 single taxpayer or $500,000 married taxpayer exclusion from income.
Both of these exclusions mentioned require that the foreclosure is on your principal residence, so you can see why it is so important to remain in your home until the foreclosure is complete. Don't just hand in the keys and walk away. Finalize the foreclosure while you are still living there and you will be in a much better tax situation.
I hope this information was valuable to you and I'm look forward to covering more frequently asked questions in our next video. Until then, take care.

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