Recent news reports that many Americans who found there homes underwater are now drowning in back taxes. In the Wall Street Journal article, A Surprise Hit on Foreclosures, Jeff D. Opdyke recounts the stories of some of the millions of homeowners across the nation who “are discovering that their decision to walk away from a mortgage could result in tax bills running into the thousands or tens of thousands of dollars.”

It’s a question of home foreclosure and debt cancellation. In certain cases, the IRS will deem home foreclosure a viable form of debt cancellation, meaning your debt becomes taxable income. Opdyke highlights the surprise many homeowners felt when they realized they owed the IRS thousands of dollars in back taxes: “Dianne Corsbie, a White Plains, N.Y., financial planner, says about 5% of her 200-client practice owes taxes because of a foreclosure, most tied to investment properties.”

As a taxpayer, it is extremely important to be aware of whether or not your cancellation of debt income will be deemed taxable by the IRS, otherwise you may have some hefty IRS back taxes adding up in your name. It may be necessary for you to seek the advice of a Certified Tax Resolution Specialist or tax attorney in order to guarantee that your canceled debt is being properly addressed.

Although foreclosures are treated like sales for tax purposes, oftentimes some of the profit can qualify for exclusion from income. However, according to the Wall Street Journal article, the government is currently expanding its mortgage-modification program. The Obama administration is asking banks to reduce principal as a way to help people stay in their homes, but that reduction may ultimately lead to more tax obligations.

As many Americans have lost their homes due to the real estate crash, some are wondering what they can do about back taxes owed. Learn more about what you need to know about taxes on “cancellation of debts.”

It’s better to be safe than sorry when it comes to dealing with cancellation of debt. In order to be sure you are addressing your taxable income properly you should visit a tax attorney or Certified Tax Resolution Specialist immediately. For reliable tax advice call our office today at 1-866-IRS-PROBLEMS for a free, no-risk tax resolution consultation or visit http://www.taxresolution.com