If you lost your Oregon home in a foreclosure or gave it up in a short sale prior to 2014, there were no tax repercussions to the forgiveness of debt. Unfortunately, the exception in the tax laws that made this so has now expired.
If you lost your principal residence in a foreclosure or gave it up in a short sale in 2014, you may still need to pay taxes on the forgiven debt. Until cooler heads prevail and the exception in the tax laws is reenacted, there are still two ways to avoid going out of pocket to the tax man. These exceptions can be applied not only to debts forgiven in a short sale or foreclosure but to debts eliminated in a debt settlement arrangement.
1. Insolvency: Forgiven debt is not counted as income if your remaining debts are greater than the value of your assets when the forgiveness occurs. So take away the mortgage that was foreclosed and total up the value of your assets and determine if the total value of those assets is less than what you still owe. Chances are if you are on this website, the answer is that your stuff is worth considerably less than what you owe on your other debts. The only real wrinkle is that the value of your 401k will be counted in the asset total.r.
2. Bankruptcy Discharge: Debt discharged in bankruptcy cannot create tax liability if the sale takes place later. Your personal liability is extinguished by the bankruptcy so there is no debt forgiveness in the later foreclosure or short sale.
If you have any questions at all regarding foreclosure, debt forgiveness, insolvency or bankruptcy, please feel free to contact either our Portland or Salem Bankruptcy Law Offices for a free consultation.