Home Foreclosure

Foreclosure is the legal proceedings initiated by a creditor to repossess the collateral for loan that is in default. You will have to report your home foreclosure as taxable income on your tax return. Firstly, you must decide whether you have taxable income that you must report on your tax return from the discharge of financial obligation caused by you home foreclosure. You have taxable income that you must report on your tax return from the discharge of financial obligation caused by your home foreclosure if you are personally liable on the debt and the debt discharged is more than the fair market value of the property at the time of the home foreclosure.

Next, you must compute taxable gain or loss and include it on your tax return on disposition of your home through home foreclosure. Financial gain or loss is the difference between your adjusted basis in the property and the amount realized through the home foreclosure, even if you received no cash or property in the home foreclosure "sale" transaction. You should still follow this second step even if you have no discharge of financial obligation or indebtedness income included on your tax return from step one. The difference between the amounts realized less than any reportable discharge of indebtedness income from the home foreclosure sale and your adjusted basis is your tax gain or loss you must report on your tax return.