Tax Implications of Foreclosures

Foreclosure rates rise and fall with the real estate market. With foreclosure laws being determined at the state level, the process of foreclosure varies from state to state. These variations can have considerable effects on taxation. One important variance with respect to taxation is whether a state is a recourse or nonrecourse state. For example, if a home loan is recourse debt, income that is gained under cancellation of debt (COD) can be taxable. Research the foreclosure laws/standards within your state. If your state does not have foreclosure laws/standards, select another state. Consider the impact of the laws/standards on the individual tax filers gross income exclusions.

With these thoughts in mind:

Post by Day 3 an analysis of your states foreclosure laws/standards on the individual tax filer at the state and federal level. How would the tax filer be affected by a 1099-C on a foreclosure based on the states rules? How would a foreclosure impact the filers gross income exclusions? Be sure to support your response with references to this weeks Learning Resources and your research of your states foreclosure laws/standards