Wednesday, October 7, 2009

Dealing with Foreclosure in Oregon, Part 6

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#6. Will I owe tax on my debts after foreclosure?
The federal tax code provides that any time you are released from a debt, you must declare that debt as income on your personal tax return for that year. This is logical when you consider that when you received the money as a loan, you did not report it as income. However a new tax law provides two exceptions to the general rule for property owners who lose property through foreclosure. The Emergency Economic Stabilization Act of 2008 extended the exclusion from gross income for the discharge of qualified principal residence indebtedness by an additional 3 years. This exclusion now applies to debt discharged after 2006 and before 2013.

The two primary exclusions which allow you to avoid reporting the debt as income on your tax return: insolvency, and qualified residence indebtedness. The law has specific requirements and certain exceptions that can be complicated to understand. After reviewing your specific situation, we can determine whether you might qualify for tax relief under the new laws or not. The answer to this question could involve tens of thousands of dollars.

Next up is part 7: Should I file for bankruptcy, and when?
For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.

1 comment:

  1. Hi Ben,
    Thanks for the very informative posts.
    I have a question about "qualified principal residence". I bought a condo in Eugene for my daughter to live in while attending college. When she graduated, we tried to sell, but it was about $50k upside down. In addition, my wife lost her job, so we could no longer afford the payment. We own a home in the Portland area where I live. We applied for a Deed-in-lieu, but was refused for reasons I do not understand or agree with. Since that condo was my daughter's principal residence for 3 years, does that qualify for the qualified principal residence exclusion under the recovery act? -thanks BigBeezer