IRS publication 4681
March 10, 2010 at 9:55 pm 8 comments
When a lender cancels debt, in several cases they will issue a 1099-c. The “c” stands for ‘cancellation of debt’. This is important to understand if you are considering a short sale. In some cases, you would be liable for the income, however there are important exceptions you need to know about.
The 3 most common exemptions are:
1) primary residence. If the property is/was your primary residence, you are probably exempt from being liable for income taxes on the ‘loss’ the bank took.
2) insolvency. If you were insolvent immediately prior to the loss, you are exempt.
3) bankruptcy. If you discharge your debts in a chapter 7 bankruptcy, you will not be liable for the income tax.
You can get complete information in IRS publication 4681, which you can download here: http://www.irs.gov/pub/irs-pdf/p4681.pdf
They even have an insolvency worksheet so you can find out if you qualify.
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1.
william zingg | May 25, 2010 at 10:58 am
Can we issue a 1099-c to a contractor that doesn’t pay his bill, but does not file bankruptcy?
2.
walkaway2day | October 12, 2010 at 3:37 pm
I’m not sure I understand the line of questioning here…can you clarify what this has to do with a property??
3.
JOSEPH GRUTTA | April 14, 2011 at 10:59 am
I have researched this question in the past and there was actually a court case which said anyone can issue a 1099-C for forgiveness of debt. The statues state a financial institution must issue but it does not say anyone else can not issue.
I don’t have the case information available but it was published in one of my tax organization newsletters about a year ago.
Joseph Grutta, EA, CFP 321-777-8482
4.
Khalil Afjeh | January 20, 2011 at 9:00 pm
Bank of America has not give me a mortgage modification after 33 months and I am doing a short sale in San Diego CA and I will loose abour $250K. Do I need to pay any taxes?
5.
Julia Dean | February 7, 2011 at 7:09 am
I received a 1099 A
for mortgage forclosure and Heloc on my primary residence.
I have bee forgiven the debt.
Do I have to pay income tax on any of this?
6.
Gary Corbin | February 23, 2011 at 4:45 pm
I did short sale my townhouse and recd the 1099c form. I also have the certificate and affividavit of satisfaction from the mortgage company. Is it considered income?
7.
Leon Francis | March 31, 2011 at 11:24 am
If a person rents his principle home and receivces a 1099-c will he be liable to pay taxes on the amount forgiven?
8.
dawn | April 8, 2011 at 4:41 pm
I foreclosed on a rental property. and recieved a 1099A. do i submit a schedule E and use the infor from the 1099A on a form 4797?