Quote:
Originally Posted by PornoMonster
Hey Will76,
You do get taxed for the difference, trust me!
Never has made sense to me, but somehow the Gov thinks you got money, and need to be taxed.
I have a friend who lost his house in Phoenix, the bank took the house, and acter auction, he still owed 40K. He filed for bankruptcy, and the IRS charged him taxes on the 40k.. Crazy system.
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They are of course different situations, but the exemption posted by the IRS seems pretty clear that at the very least home owners of their personal residence would be exempt. That is also if the bank "forgave" the money. I see the IRS's stand point, the person can't have their cake and eat it too. If at the end of the day you owe the bank 50K and they forgive it, that technically is income even though you didn't get it, you didn't have to pay it. Which you pay likely 20% income tax on that money as ordinary income, opposed to the bank not forgiving the loan. Then you owe the bank 100% of the money back, not just 20% of it to the IRS.
But even with the exemption, most of not all of personal residence home owners do get to get their cake and eat it too.