If you are considering a real estate short sale of your home, you should be aware that you might receive a form 1099-C for the amount of the lender's losses.
This is considered loan forgiveness in the eyes of the IRS. If you have other assets such as savings and you are not insolvent, you may end up being responsible to pay ordinary taxes on the amount of the 1099-C.
If you settle a debt with a creditor for less than the full amount owed, you may be required to report this forgiven debt as regular income, with certain important exceptions.
The forgiven debts include money owed after foreclosure or property repossession or credit accounts that you don't pay.
There are exceptions noted below:
If a lender forgives or writes off $600 or more of a debt's principal (the amount not including interest or fees) must send you and the IRS a Form 1099-C at the end of the year. When you file your tax return for the tax year in which your debt was written off, the IRS will require that you report the amount on the form as income.
Fortunately, the Obama administration passed a law stating that if you are short selling your primary residence, you may be exempt from paying taxes even if a 1099 is submitted to the IRS by the lender.
While you may not have received this form from the creditor, the creditor may have submitted one to the IRS anyway. If you don’t list the income on your tax return and the IRS has the information of the transaction on file, you could get a tax bill or, worse, an audit notice. This could end up costing you more than just the original tax bill.
There are several exceptions stated in the Internal Revenue Code. For example, you do not have to report the income on your tax return if the write off of the debt is intended as a gift, you discharge the debt in bankruptcy, or you were insolvent before the creditor agreed to settle or write off the debt. You should consult a qualified tax and legal counsel to see if these circumstances apply.
Modify Search Criteria
9654 S Carousel Circle
Summerville, SC 29485
Charming 2 story home with 3 bedrooms, 2 full baths & 1/2 bath home located in desirable Wescott Plantation community. The community has a lot to ...
11 Reid Street
Charleston, SC 29403
Possible Short Sale!! Ready for its next owner!! Great Downtown Charleston home just off Easy Bay St. Come See!!
1095 Friartuck Trail
Ladson, SC 29456
Located in desirable Hunters Bend, you will be close to schools, shopping, and restaurants! Walking in you are greeted by beautiful floors, smooth ...
8612 Woodland Walk
North Charleston, SC 29420
Coosaw Creek Country Club
Lovely home in Coosaw Creek that needs some updating but what canvas to work with. Step onto the front porch and you come to a large full glass w...
2356 Darts Cove Way
Mount Pleasant, SC 29466
** LUXURIOUS HOME DESIGNED FOR INDOOR/OUTDOOR ENTERTAINMENT ON PRIME LOT IN DUNES WEST. ** WATER VIEWS OF WAGNER CREEK FROM NEARLY EVERY ROOM WITH ...
6125 Maybank Highway
Wadmalaw Island, SC 29487
Handy man special. Home is vacant and in need of updating and repairs. There is a separate mother-in-law suite at the far right end of the home. ...
5804 Palmetto Drive UNIT A-302
Isle of Palms, SC 29451
PREAPPROVED SHORT SALE--QUICK CLOSING POSSIBLE !!! FURNISHED END UNIT WITH GREAT RENTAL HISTORY. THERE IS A WRAP AROUND PRIVATE BALCONY THAT HAS V...