17 Oct 2007 06:47 am
Phantom Income Subject Of Legislative Action
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| The US House of Representatives recently voted to remove a tax penalty known as “phantom income” tax. In the past, if a lender or creditor forgives all or part of a debt due to a foreclosure or short sale , the amount forgiven is seen as income by the IRS, which is taxable. The IRS requires that lenders send a Form 1099 reporting they cancelled the debt to any homeowners that foreclose or participate in a short sale. The IRS turns around and taxes the homeowner on the “phantom income.” The obvious issue with the current law is if the homeowner did not have the money to pay their mortgage (resulting in the foreclosure), they most likely will not have the money to pay taxes on income they were never actually given. |  |