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Do I need to report my foreclosure in my 2015 tax filing?

Tax time is here and if your home has been foreclosed on in the last year, you may be wondering if you need to report it to the Internal Revenue Service. According to the agency itself, that answer depends on how much your reportable gain amounted to and what your cancellation of debt income is.

The first step to determine the answer is to figure out if there is any reportable gain from your home’s disclosure. Your lender should have filed a tax form called 1099-C with the IRS. On this form, the lender reports what the fair market value of your home was at the time of the foreclosure. This amount is then subtracted from what is called the “adjusted basis in the property,” which is the sum of any significant improvements you made on the home (like remodeling the kitchen, replacing the roof or adding a bonus room) and the price you paid when you bought the home.

If the balance is less than zero, then you have no reportable gain and you do not have to report the foreclosure. If you have an amount higher than zero, you are still eligible for a government exclusion. To qualify, you have to show that you lived in the home as an owner during a five-year period that amounts up to at least two years. If you can show this, then you can use up to $500,000 if you are married and filing jointly or half of that if you are filing separately or you are single.

The other part of the answer is the cancellation of debt income. This amount is calculated by subtracting the same market value from the 1099-C form, from the amount you owed on the property when it was foreclosed on. If your cancellation of debt is above zero, then that amount is usually subject to tax unless you can show that the debt was discharged through a bankruptcy, you had a non-recourse loan or the debt is connected to a farm you operated. Tax filings can be complicated and every person’s situation is different. Therefore, this information is for general education only.

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