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.
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3529 Galaxy Road
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MLS# 25003131 / Active
Welcome to 3529 Galaxy Road, a spacious 5-bedroom, 2.5-bathroom home in Ladson, SC. This two-storyresidence offers approximately 2,736 square feet ...
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Fall in love with this charming Charleston-style home, nestled on a serene street within the established & historic neighborhood called The Ponds. ...
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Welcome to Sheep Island. DR Horton's community steps from Nexton. Located just a mile from downtown Nexton, residents enjoy convenient grocery shop...
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Discover unparalleled waterfront living with this Lowcountry Retreat nestled on 1.15 acres on a peaceful cul-de-sac. Located on Martin Creek, this ...
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391 Wappoo Trace Lane
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QUICK MOVE IN! Lockwood C! This 5BR 3.5BA home has it ALL! This home has it ALL including Laminate Wood Flooring thorughout (no carpet) Wood treads...
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Stunning NEWLY RENOVATED 5-Bedroom, 4.5-Bath home with BOAT SLIP AVAILABILITY, Mother in Law suite/ apt with rental income, heated and chilled bran...
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