For the last five years, Congressional intervention has meant that underwater homeowners wouldn't face tax penalties when a portion of their debt was forgiven upon foreclosure.
However, Colorado Springs foreclosure defense lawyers know that protection is set to expire at the end of the year.
This means if you're on the verge of foreclosure, the time to seek help is now. If it ends up not being worthwhile to stay and fight for your investment, you could end up paying tens of thousands of dollars in income taxes if you wait until after Dec. 31, 2012.
In most cases, if you have a good attorney, you can save your home by negotiating a significant reduction on your principal payment through a loan modification. This is going to lower your monthly obligations, making it easier for you to keep up with every month. This is particularly helpful to homeowners who were caught up in the housing crisis, where they purchased their home for far more than what it was actually worth. Reducing the principal balance can bring your payments back in line with what would be considered a fair market value.
However, there are a few situations when it may make sense to initiate what is called a strategic default, which is where you simply walk away from the home and allow the bank to foreclose without a fight. This is rarely advisable because it is so harmful to your credit. However, sometimes it can be worth it when there is no way you'd be to keep up the payments and the bank absolutely won't work with you.
Prior to 2007, the statute was such that if your home was foreclosed upon, the bank had the option of "forgiving" the difference between what you owed and what was paid for the property. However, this "forgiven" amount was deemed income by the federal government - income upon which you had to pay taxes. When the housing crisis hit, Congress stepped in and allowed an exemption, meaning homeowners wouldn't have to consider this income.
What was originally intended to be a three-year relief was extended another two years. But now, it's going to expire. That means if you are forgiven $20,000 worth of the mortgage, you will have to pay taxes on that $20,000 as if it were in your pocket. If you're facing foreclosure, chances are this is money you don't have.
The bottom line is that if you are facing foreclosure, you need to act now so that you can get the matter settled before the expiration of these tax benefits, should you need them.
Grappling with tax debt in Colorado Springs can be stressful for anyone. The penalties and pressure that builds from having it hang over your head can be a roadblock in starting fresh in your financial future.
Our Colorado Springs tax debt relief attorneys can help. Bankruptcy may be an option, or you may need someone to assist you in negotiating payment plans or reductions with the IRS.
Some individuals, however, will do just about anything to get out of paying taxes. CNNMoney recently reported on some of the strangest tax evasion efforts ever. Odd as they may seem, multiple individuals have tried them - and been unsuccessful.
The first involves the use of 666, known as the "mark of the beast," in Christian religious text. One individual from Kentucky argued that he couldn't file his W-4 forms because his Social Security number contained this information. His new employer ultimately terminated him as a result. He sued for religious discrimination, but the lawsuit was tossed. Others have refused to file tax paperwork at all, saying that all Social Security numbers were essentially akin to this "mark."
Similarly, some people claim that paying taxes is against their religious beliefs. Not only has this argument not ever worked, but thousands of dollars in fines can be accrued as a result of trying to avoid paying.
Another creative tax evasion effort involves individuals who say they shouldn't have to pay federal taxes because they claim their state isn't actually part of the U.S. This has happened in both Texas and Indiana - and always, the argument falls on deaf ears. You can even be fined up to $25,000 for even making this argument.
Some individuals have taken it so far as to refer to themselves not as an actual person. They say that federal tax law pertains either solely to companies, or that they are not a "person" as defined under the constitution. These cases haven't been successful, and the IRS has taken many to court over these claims.
Other people have tried to make the case that only gold money is taxable. This just flat-out isn't going to fly with the IRS.
The bottom line is that while coping with Colorado Springs tax debt is tough for anyone, the best way to go about tackling it is to meet with an experienced debt relief attorney.