Foreclosure and Taxes

The housing crisis and tough economic times are marked by record foreclosures. For some, foreclosure seems like a way to put problems behind them and move on to a new chapter. However, that foreclosure can haunt you in a variety of ways.

In some situations, you'll have to pay taxes after a foreclosure. If you owe more money than your home is worth, the bank may forgive or cancel your remaining debt. While it sounds like a nice thing, it may create a tax liability for you.

About.com's tax expert explains the basics of tax on foreclosures, and how different sales are treated. Getting a loan canceled is not always as good as it sounds.

Further reading:

• Recourse Loans vs Non-Recourse Loans