Taxes – Real Estate Foreclosure and COD
Real estate foreclosures are an unfortunate part of our current economic situation. COD (Cancellation of Debt) can be a part of the real estate transaction or it can arise from negotiating a better loan rate, or a reduced loan amount or writing off a credit card or other debt. It is great that you got a better deal, but just remember, the IRS may want to get some tax dollars for this.
New federal laws went into effect in 2008 and 2009 for this tax situations. The state’s income tax impact requires special attention as well.
I recommend to my clients to advise me as soon as possible when they have such an event, so that we have a chance to work this into the tax strategy for the year.