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If you walk away from a mortgage you don’t want any more, what are the consequences? I wrote about the moral and credit implications in a previous post. A reader emailed to ask about the federal tax implications. “In my state, the banks send a notice saying that you owe taxes on the unpaid debt,” he wrote.
He’s right. In many states, any part of a mortgage that the bank forgives is reported as taxable income.
In some states, you’re off the tax hook if the bank forecloses on your original mortgage. But you could still be taxed on a home equity loan or a loan you refinanced.
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