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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16 Photos 8528 Falling Leaf Lane Charleston, SC 29420

8528 Falling Leaf Lane
Charleston, SC 29420
Whitehall
Residential

MLS# 21028087 / Active
4 br, 2 ba, 1 Half Bath, 2303 Sqft

Centrally located house in Whitehall with nearby shopping and restaurants. Floor plan is ideal with master bedroom downstairs and lots of flex spa... 

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$309,000
Provided courtesy of Carolina Elite Real Estate
8 Photos 102 Balmoral Circle Goose Creek, SC 29445

102 Balmoral Circle
Goose Creek, SC 29445
Braemoor
Residential

MLS# 21027544 / Active
3 br, 2 ba, 1345 Sqft

Great price on this 1 story home located in Braemoor subdivision in Goose Creek. Priced for an as-is quick sale, this is a great opportunity. This... 

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$210,000
Provided courtesy of Coldwell Banker Realty
7 Photos 1661 Eider Down Drive Summerville, SC 29483

1661 Eider Down Drive
Summerville, SC 29483
Drakesborough
Residential

MLS# 20028838 / Active
4 br, 2 ba, 1 Half Bath, 2323 Sqft

This 4 bedroom 2 & 1/2 bath home is in a grand location close to the new industrial developments, just off I-26 near Jedburg. House need some TLC a... 

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$285,000
Increase +$65,000
Provided courtesy of Harbins Two, Inc
20 Photos 6125 Maybank Highway Wadmalaw Island, SC 29487

6125 Maybank Highway
Wadmalaw Island, SC 29487
Wadmalaw Island
Residential

MLS# 19001554 / Active
4 br, 3 ba, 3008 Sqft

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. ... 

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$300,000
Increase +$100,000
Provided courtesy of Carolina One Real Estate
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