Taxation of abandonments, foreclosures and repossessions

Many taxpayers in the current economy have had trouble paying mortgages, car notes and other debts. Some are forced to abandon property, go through foreclosures or have property repossessed. While such measures may alleviate the financial burden on these taxpayers, the tax consequences often are overlooked.

When property that secures a debt is abandoned by voluntary or involuntary action, the tax consequence depends, among other things, on whether the taxpayer was personally liable for the debt and whether the abandoned property was personal use.