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1099C a year later...


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I did a short sale on my primary residence that closed Dec 29th 2010. I just now (Feb 2012) received a 1099C for the short sale amount ($200K). It was dated Jan 6 2011. The paperwork from the escrow company says the date the transaction was completed and funded was Dec 29th. The mortgage was with BofA. The short sale approval paperwork from the bank says that BAC and it's investors waive the remaining balance on the loan and release the borrower from further obligation therein, and waive all rights to pursue further judgment or deficiency.

My tax return reflects the sale in 2010 even though I didn't have a 1099C at that time. Do I have to go back and file an ammended return with this amount ($200K) as debt relief in my regular income that year? Or since it is dated 2011 is it reported this year? Since it was my primary residence, I should not have to pay taxes on this amount, is that correct?

Thank you for your answer.

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They have up to three years to give you a 1099 C. Go to a tax proffesional and let them help you. I am doing that now! If you can show a BK or insolvency during the year of loss, then you might be able to get out of it. There are several ways to attack it, your tax person or attorney can best guide you. Good luck.

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See the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) The law provides tax relief if your deficiency stems from the sale of your primary residence (the home that you live in). Here are the rules:

Loans for your primary residence. If the loan was secured by your primary residence and was used to buy or improve that house, you may generally exclude up to $2 million in forgiven debt. This means you don't have to pay tax on the deficiency.

Loans on other real estate. If you default on a mortgage that's secured by property that isn't your primary residence (for example, a loan on your vacation home), you'll owe tax on any deficiency.

Loans secured by but not used to improve primary residence. If you take out a loan, secured by your primary residence, but use it to take a vacation or send your child to college, you will owe tax on any deficiency.

Give it to your accountant next year when you file your taxes....

IRS link below


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Talk to your accountant. Assuming this is qualified principal residence indebtedness (this is a strictly defined term so look it up), you are REQUIRED to file a form 982 to exclude it from your income.

Because this was a primary residence, there are likely no federal tax consequences due to the 1099, to the extent it is qualified principal residence indebtedness. I cannot tell you if there are tax consequences for state and local purposes. It depends on your jurisdiction. I recall CA passing some sort of legislation a few years ago to exclude state tax due on mortgage forgiveness 1099 income, but you need to double check if this is still in effect.

If I were your accountant, I would amend the 2010 return since the income was clearly in 2010 (date of sale + short sale agreement = income). The lender does not have 3 years. They have to issue a 1099 upon the first identifiable event that makes it income. One of those identifiable events is the passage of 36 months, but in this case the first event was certainly the short sale transaction itself, which occurred in 2010. Keep in mind that if the lender doesn't issue a 1099 at all, it doesn't mean that you don't have to report it. Certainly the sale of a home should have came up on your 2010 returns. And if it didn't, it needs to. The new homeowner/borrower has the same home tacking on their 2010 return for sure, so really it needs to properly be done in 2010.

So in summary:

1) Verify the total amoutn of gain you had from the sale. Then back out the amount that is qualified principal residence indebtedness (it may be all of it, some of it, or none of it).

2) Your accountant should amend your 2010 return to include this whopping transaction, hopefully tax free.

3) When you file 2011's return, I'd attach a letter stating that the transaction giving rise to the lender's 1099 issued in 2011 occurred in 2010 and was properly included by amendment. lenders never seem to get the treasury regulations correct because they're very complex and the lenders are overwhelmed as it is.

Good luck! The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Edited by jq26
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