Yes, you can get taxed when your home goes into foreclosure!

After you experience a foreclosure, you may think that is the end of the nightmare, but in fact you can be assessed a huge tax bill afterwards. This is because the lender files a 1099-C to inform the IRS of the foreclosure.

When a debt is forgiven or foreclosed, it is treated as income to the buyer because the buyer no longer has to repay, even though they received income when they took out the loan. If the amount that is forgiven or discharged is less than the loan about, you will have DOI income (discharge of indebtedness income.) You will also have DOI in a short sale scenario and when a loan modification with a lender included a reduction of principal. DOI is taxable.

If the borrower/home owner is not aware of this, he or she may undereport taxes for that tax year and the IRs will assess interest and penalties to such an individual.

Speak with a tax specialist after a foreclosure, or before. If a foreclosure occurs, you have to file a long form 1040 and attach a form 982. But you must discuss this with a TAX EXPERT!