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Will repossession of my Florida assets affect my taxes?

Financial challenges or unemployment likely present a very stressful time for Florida residents suffering from these experiences. Floridians may be facing the threat of repossession of their assets or wondering if they should be considering entering the bankruptcy process, and wondering how these changes may affect other aspects of their lives.

One question that may arise as a family struggles with financial challenges is what effect will repossession of a person's assets have on his or her income taxes. When a person has an outstanding loan on personal property, such as a car, and fails to make the required payments, the lender may repossess the property.

The IRS treats this repossession as a sale, and a person may realize a gain or loss from the "sale." Whether there is a loss or a gain will depend on the value of the personal property, as well as the loan balance when repossessed. Additionally, if the balance of the loan was greater than the property's fair market value, as unfortunately may be the case for some people, a person may also realize ordinary income following the repossession, and this must be reported on a person's tax return, unless an exception applies.

A bankruptcy filing, above and beyond the simple repossession of a person's assets, will also have an effect on a person's income taxes, and the details of how bankruptcy may affect an income tax return should be discussed with an experienced attorney.

The IRS's regulations for income taxes can be very complex, and, as mentioned, there can be exceptions to certain reporting requirements. Before filing any taxes, a Florida resident should speak with an attorney to discuss his or her particular situation about how his or her income taxes may be affected by repossession or a bankruptcy filing.

Source: IRS, "Foreclosures and Repossessions," accessed Sept. 20, 2015

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