Foreclosure

Foreclosure

About Foreclosure:

for tax purposes, a loan that is treated as a sale or exchange from which the borrower may realize gain or loss, even if the property is voluntarily returned to the lender. The borrower's gain or loss is the difference between his or her adjusted basis in the transferred property and the amount realized. The amount realized on nonrecourse debt is the full amount of the debt canceled by the transfer. If the debt is recourse and the fair market value of the property is less than the canceled debt, the amount realized by the borrower includes the canceled debt up to the fair market value of the property. The borrower is treated as receiving ordinary income for the amount of the canceled debt in excess of the fair market value of the prop-erty. If the transferred property is a capital asset, the owner's gain or loss is a capital gain or capital loss. If the property is not a capital asset, the owner recognizes an ordinary gain or an ordinary loss.

See also discharge of indebtedness income; repossession.

See also Capital Gain in the American Legal Encyclopedia and Capital Gain in the World Legal Encyclopedia.


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