What? An upside to foreclosure? Are U crazy?

Reported by Lauren Lowrey email
Posted by Kate Oatis email

Believe it or not, there's an upside to going into foreclosure during these tough times. It's called the Mortgage Forgiveness Debt Relief Act of 2007.

Ariane Redd is a senior tax consultant for the IRS and she says before the act passed, the government viewed the money you owed the bank from foreclosure as taxable income.

But not anymore.

"Could you imagine? You already lost your home. You're already in a bad financial state, and then you have to turn around and pay taxes on your home. So, this should be a great relief for many taxpayers," Redd said.

For many, foreclosure was the result of a layoff, and if that loss of income put your household earnings below $40,000 you could be eligible for another credit.

"Another important tax credit to consider is the earned income tax credit," Redd said. "If they make under $40,000 they could qualify up to $4,800, depending on their income, of course."

But that's money that goes unclaimed sometimes because a lot of people don't know about it.

You'll find a calculator on irs.gov that'll tell you how much money you're eligible for.

And one more tip for the unemployed looking to avoid the tax burden: "If they're not having withholdance taken out of their unemployment, they need to make sure to fill out a W4V so that later they don't incur a tax bill," Redd said.