The rules are pretty straightforward when it comes to repossession, foreclosure and the tax reporting. Unfortunately, the market is in such chaos right now that not many people are getting it right. And even worse, if you call the IRS you’re not likely to get the right answer either.
Today I want to focus just on the Form 1099-C. Your lender is supposed to give you a Form 1099-C if you have forgiveness of debt. This could come if you negotiate a lower balance on your credit card bills or if the lender agrees to a short sale. You may or may not get one with a foreclosure or deed-in-lieu of foreclosure.
When Do You Get a Form 1099-C?
The Form 1099-C is used when there is cancellation of debt. That means you’re not on the hook anymore. If you don’t get one, it doesn’t necessarily mean that the lender is coming after you.
If you don’t get a Form 1099-C and you think you should have, it could mean:
- The lender is intending to come after you for the debt
- The Form 1099-C was sent to a wrong address
- The lender was bought, closed, merged or otherwise changed and the records are in shambles
- There was fraud involved and so they have ‘wound back’ the transaction as if it never occurred
- The lender hasn’t yet determined the amount that is forgiven. For example, the property was foreclosed on and has not yet sold
- The lender doesn’t know what they are doing
The problem is anyone of those reasons could be true in your case!
If you had a loan change for any reason and you didn’t get a Form 1099-C, call the lender. Don’t file your tax return without knowing whether there is a Form 1099-C out there.
For more information on how to handle tax issues due to the current market conditions, and some tax breaks you might not have been aware of, please join me Wednesday, April 7, 2010 for How to Survive the Coming Tax Changes. Sign up at DianesSeminars.
Tags: 1099-C • Cancellation of debt • debt after foreclosure • debt forgiveness • debt forgiveness tax • mortgage debt forgiveness • mortgage debt relief
Related posts:
- Form 1099-C & Form 1099-A Debt Forgiveness
- Form 1099-A & Form 1099-C Problems
- Reporting Form 1099-A & Form 1099-C
- Got a Form 1099-C? Now What?
- Form 1099 Due Out By End of January
On April 13th, 2010 | 7:06 pm
ven said:
Hi Diane,
I have rental property with carry over losses around 40,000. I can’t deduct losses against my personal income as property is rented through property management company and joint salary is more than 150k. If I negotiate TO reduce my principle with my lender, Can I deduct 1099-C income against my carry over losses from previous years.
I read your real estate book, you mentioned about setting up LLC/ Land trust etc.
Is it possible to deduct those lossses against personal income without selling home?
Thanks
On April 13th, 2010 | 8:42 pm
Isara Argent said:
You didn’t explain how to not pay extra taxes. I recall reading something about it depending partly on your income level.
On April 14th, 2010 | 8:41 am
Diane Kennedy said:
Ven, if the Form 1099-C income is coming because you disposed of the property then all previously suspended losses are immediately deductible.
On the other hand, if you have Form 1099-C income because you’ve done a loan modification, and thus still have the property, the losses will most likely stay suspended.
I’d suggest you talk to a CPA who has real estate accounting and tax experience. If you’re not careful, you could end up owing a bunch of taxes.
On April 14th, 2010 | 8:45 am
Diane Kennedy said:
Isara, I’m not really sure what you’re asking. Do you mean the taxes that come from cancellation of debt? Or do you mean the taxes during the time you hold the property? If you could provide a little more detail, I’d love to answer your question.
On April 18th, 2010 | 11:50 pm
Isara Argent said:
I mean the taxes that come with the cancellation of debt, by paying a negotiated settlement. My understanding is that if your income is below a certain level that there is no tax.
On May 5th, 2010 | 10:58 pm
Report forms said:
Deductible debt. You do not have income from the cancellation of a debt if your payment of the debt would be deductible. This exception applies only if you use the cash method of accounting. For more information, see chapter 5 of Publication 334, Tax Guide for Small Business.