What Borrowers Need to Know of the Potential Tax Costs of Loan Workouts and Foreclosures

The Borrower’s Tax Consequences in a Foreclosure

The mechanics of foreclosure are specific to the laws of the State in which the property is located. In general, in a foreclosure, the court will order the issuance of a sheriff’s deed to the owner of the underlying loan. For Federal income tax purposes, this transfer of title is treated as if the borrower sold the real estate that secured the loan to the recipient of the sheriff’s deed…