Despite the record-high prices in real estate some homeowners
and landlords have experienced financial hardships due to the
COVID-19 pandemic. Although the federal government and many states
provided some relief - in the form of mortgage forbearance and
moratoriums on foreclosures and evictions - many of these programs
have ended or will soon end. As a result, some real estate owners
are facing the prospect of foreclosure on certain properties.
To make informed decisions about how to handle these properties,
it is important to understand the tax and other financial
implications of foreclosure. Here is a brief summary.
Gain Recognition
Depending on the circumstances, foreclosure can result in
recognition of gains taxed as ordinary, capital or both. You can
have taxable income even if the property has declined in value
since it was purchased. The tax treatment depends, in part, on
whether the mortgage loan is nonrecourse or recourse. Briefly, a
nonrecourse loan
