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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5558 Green Dolphin Way
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MLS# 25017826 / Active
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225 N Light Way
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MLS# 25017824 / Active
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68 Vanderhorst Street UNIT A
Charleston, SC 29403
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MLS# 25017822 / Active
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68 Vanderhorst Street UNIT B
Charleston, SC 29403
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MLS# 25017820 / Active
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MLS# 25017818 / Active
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708 Tierra Loop
Summerville, SC 29483
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MLS# 25017802 / Active
Multigenerational Living on Nearly an Acre only 15 min from downtown Summerville!Welcome to 708 Tierra Loop--a truly rare opportunity! Nestled on 0...
1820 Mepkin Road UNIT #1019
Charleston, SC 29407
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This beautifully updated condo offers the perfect blend of comfort and convenience--just minutes from I-26, I-526, shopping, dining, and only 10 mi...
354 Beachgrass Lane
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MLS# 25017795 / Active
This stunning 5-bedroom, 4.5-bath home in the highly sought-after Oaks at Cane Bay offers the perfect blend of space, style, & convenience! The fir...
Reduced -$5,000
5084 Timber Race Course
Hollywood, SC 29449
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MLS# 25017794 / Active
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Mount Pleasant, SC 29466
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MLS# 25017785 / Active
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Charleston, SC 29412
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MLS# 25017784 / Active
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259 Huguenot Trail
Huger, SC 29450
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MLS# 25017783 / Active
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MLS# 25017782 / Active
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MLS# 25017781 / Active
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206 Palfrey Drive
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1001 Waterwood Drive
Goose Creek, SC 29445
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MLS# 25017772 / Active
Welcome to this beautifully updated 2-bedroom, 2-bath condo located in the desirable Greenslake Condo community--perfect for anyone seeking low-mai...
Reduced -$13,000
312 Germander Avenue
Summerville, SC 29483
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Residential
MLS# 25017764 / Active
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Reduced -$15,500
914 Dill Avenue
Charleston, SC 29412
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MLS# 25017762 / Active
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Walterboro, SC 29488
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