What to do with 1099C from mortgage loss
I lost my house, 1099C…what now?
What is a 1099C?
Any time you are forgiven over $600 in debt the creditor must send you a 1099C that you are supposed to include in your tax return as earned income.
So, If you find yourself in a position where you can no longer afford your mortgage and the bank takes the property back, either through the short sale process or foreclosure, you could be hit with a huge tax bill. Here is some mortgage debt advice that may save you a lot of moneySo, If you find yourself in a position where you can no longer afford your mortgage and the bank takes the property back, either through the short sale process or foreclosure, you could be hit with a huge tax bill. Here is some mortgage debt advice that may save you a lot of money.
Example: Let’s say you owe Bank of America $350,000 and the bank only gets $250,000 from the short sale or foreclosure process. The bank may forgive your $100,000 debt, depending on whether or not you live in a non-recourse or recourse state, but the IRS won’t. For the sake of this article we are going to discuss the ramifications in a non-recourse state. So, That’s awesome that you don’t owe the $100,000 to the bank, however the IRS looks at that money as earned income and expects you to pay income taxes on it.
Wow, you mean I get to lose my house and pay income taxes on the forgiven debt. Uggghhhh…..take it easy…there is a solution.
2007 Mortgage Debt Relief Forgiveness Act
What is it?
The 2007 Mortgage Debt Relief Forgiveness Act allows people to lose up to 2 million dollars on their primary residence without having to pay income tax on the forgiven debt.
How do I qualify?
You’ve lost your primary residence due to short sale or foreclosure. The forgiven debt must be between the years of 2007 and 2012 and the money lost must have been used to either purchase or improve the home.
Does my investment property qualify?
Can I use this for credit card debt?
Are the losses on my home tax-deductible?
Uh, no. You do not get to have your cake and eat it to.
What form do I have to file to qualify for the forgiveness?
Form 982 – Put the total amount of forgiven debt on the form and send in it in with your normal tax filing.
Do I qualify if I got a principal forgiveness on my home modification?
Yes. Just make sure to complete lines 1e, 2, and 10b on the 982 Form and attach it to your return.
What if I don’t qualify is there any other way to help?
Yes. If your liabilities outweighed the fair market value of your assets at the time right before you were granted cancellation of debt you may qualify for insolvency.
For more information go to: 2007 Mortgage Debt Relief Forgiveness Act or call the IRS at 800-829-1040