Form 1099-C & Form 1099-A Debt Forgiveness


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46 Comments

Did you get a Form 1099-C or Form 1099-A after you’ve renegotiated debt or had a foreclosure, deed-in-lieu of or short sale? Don’t ignore it! It means you owe taxes, but there could be a way out.

We’ve got a number of forum posts about specific circumstances at the USTaxAid Forum. Please check in “general” for Business and for Real Estate for these posts.

Some of the specific cases covered:

o What if you get a Form 1099-A or Form 1099-C for your personal residence
o What if you get a Form 1099-C for credit card debt
o What if you get a Form 1099-A or Form 1099-C for a second home
o What if you get a Form 1099-A or Form 1099-C for an investment property
o What if you get a Form 1099-A or Form 1099-C for a rental property

And you’ll find some specific strategies for minimizing or completely avoiding the tax due.



46 Comments

  1. Megan Hughes says:

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  2. Diane Kennedy says:

    Robbie,

    That question has come up a few times before with other community members. If you don’t get a Form 1099-C, there is nothing to report. (Hooray!)

  3. Robbie says:

    Diane,

    I completed a short sale in May of 2010. It was an FHA loan with Wells Fargo. I’ve been under the assumption that I would receive a 1099-C but have not and today was told by a rep from Wells Fargo that I would not receive one because it was an FHA loan and therefore insured. I’m not sure if that’s true or how I would even go about verifying it.

  4. Diane Kennedy says:

    Chelle says: Hello, I was reading some of the post and have some questions, I sold my home in 2010 via short sale, I have contacted Wells Fargo for my 1099 form only to learn they will not issue me because I had an fha loan and was paying insurance on the loan. As a result, Wells fargo is telling me that I owe nothing and the balance was recovered from the insurance payments,therefore I will not get a 1099 form. I asked if they could send me some type of document supporting this information but they said they could not. I do not want to file my taxes in error based on their negligence, is this true information and what steps do I need to take to be certain I do not have a 1099?”

    If this is your primary residence, you probably aren’t going to get a Form 1099-C. I’ve heard that Wells Fargo has been taking that position with other borrowers. If they get paid back, they’re not issuing a Form 1099-C.

  5. Diane Kennedy says:

    Levy says, “I Short Sold my house on 10/29/2010 in Arizona. I only had one loan (FHA) and this was my primary residence and original loan money. I owed around 185K still and short sold for 88k. Chase has not been very helpful with even telling me if I will get a 1099-C for 2010. They told me that my account is still open and I guess they finally received the rest of the funds to close the account on January 25th, 2011. I think they will send me a 1099-C, but it will not be until 2011? Legally can they do this? The sale was recorded in 2010, shouldn’t they send me the form based on this date? Any information would be helpful.”

    Chase probably won’t send you a Form 1099-C because it is your primary residence and you would get an exclusion from tax.

  6. Diane Kennedy says:

    Stephanie says: “Hi Diane, we completed a short sale on a rental property in Florida back in December 2009. The lender never sent us a 1099C. When I called in February 2011, the rep said they never issued one and wanted to know if I wanted to request one. When I checked our credit report, that account was stated: “Account paid for less than full balance.” Should we request a 1099C at this point if they haven’t issued one nor come after us for difficiency? Really appreciate your help!”

    Just when I think I’ve heard it all! They asked you if you wanted a Form 1099-C?? The answer is ‘no thank you.” LOL

    Great. Report the disposal of the property, take whatever loss there is available and you probably are done with it.

  7. Diane Kennedy says:

    Marjorie says: ” Diane, I feel like I’m asking the same question with different variables, but I’m still not clear. We filed a chapter 13. We gave up our first home that we had rented the last year while we were trying to sell it. I recieved a 1099A with 58,000 in box 2 and 68,000 in box 4. We paid 70.000 in 1996. Do I need to report this on my taxes? If yes, is it as a sale of a home? Thank you for your help”

    If you rented the house out for less then 2 years while you were intending to sell it, the house still qualifies as a primary residence. That means there is nothing to report for your Form 1099-A. You shouldn’t receive a Form 1099-C, but if you do, you get the exclusion anyway. You’ll file a Form 982 in that case.

  8. marjorie says:

    Diane, I feel like I’m asking the same question with different variables, but I’m still not clear. We filed a chapter 13. We gave up our first home that we had rented the last year while we were trying to sell it. I recieved a 1099A with 58,000 in box 2 and 68,000 in box 4. We paid 70.000 in 1996. Do I need to report this on my taxes? If yes, is it as a sale of a home? Thank you for your help

  9. Stephanie says:

    Hi Diane, we completed a short sale on a rental property in Florida back in December 2009. The lender never sent us a 1099C. When I called in February 2011, the rep said they never issued one and wanted to know if I wanted to request one. When I checked our credit report, that account was stated: “Account paid for less than full balance.” Should we request a 1099C at this point if they haven’t issued one nor come after us for difficiency? Really appreciate your help!

  10. Levi says:

    Diane,

    I Short Sold my house on 10/29/2010 in Arizona. I only had one loan (FHA) and this was my primary residence and original loan money. I owed around 185K still and short sold for 88k. Chase has not been very helpful with even telling me if I will get a 1099-C for 2010. They told me that my account is still open and I guess they finally received the rest of the funds to close the account on January 25th, 2011. I think they will send me a 1099-C, but it will not be until 2011? Legally can they do this? The sale was recorded in 2010, shouldn’t they send me the form based on this date? Any information would be helpful.

    Thanks, Levi

  11. Chelle says:

    Hello, I was reading some of the post and have some questions, I sold my home in 2010 via short sale, I have contacted Wells Fargo for my 1099 form only to learn they will not issue me because I had an fha loan and was paying insurance on the loan. As a result, Wells fargo is telling me that I owe nothing and the balance was recovered from the insurance payments,therefore I will not get a 1099 form. I asked if they could send me some type of document supporting this information but they said they could not. I do not want to file my taxes in error based on their negligence, is this true information and what steps do I need to take to be certain I do not have a 1099?

  12. Antonia says:

    Diane,
    Thank you so much that helps a lot.

  13. Diane Kennedy says:

    Glad the info is helpful Amy.

    I’m guessing this is your principal residence. At this moment, there is no tax due and nothing to report if that’s the case. If/when you get a Form 1099-C, then you will need to report that. If you have the primary residence exclusion, use Form 982 to take the exclusion.

    It’s hard to say whether the FMV is accurate or not. If the lender has a loss and it’s a primary residence, they probably wont’ do anything. If it’s an investment, then you may get one.

  14. Amy says:

    Hi. Great Site! Great Information! I would like to add my question for our case.

    We received a 1099-A (2010) from the lender who we had our mortgage thru. Our house forecloused on 2/5/10 (according to the form). Box 2 Shows Blalance of Principal outstanding as $152,953.64 and box 4 FMV as $167,079.02 and Box 5 Borrower Personally liable as Yes.

    From what I’ve read on your site and from the previous comments I believe we are not responsable for taxes on the difference. Would you agree?

    Also I think from your comments if those numbers were flipped we would owe taxes on the difference. But since the bank didn’t lose money on it we don’t owe.

    One last point. Since the FMV is higher then Balance of principal we shouldn’t receive a 1099-C at some point? or is that still possible?

    Thanks for the great information!

  15. Diane Kennedy says:

    Candy, they are either going to forgive the debt (and give you a Form 1099-C), forgive the debt and not give you a Form 1099-C (because you meet an exemption for paying tax and they know it) or not forgive the debt and attempt to collect from you.

    That’s assuming they follow the rules – they could also do any other combination of things (forgive the debt witha Form 1099-C and sue you anyway, refuse to give you a Form 1099-C and forgive the debt or who knows)

    Bottomline, you need to wait to see what they will do.

  16. Diane Kennedy says:

    Antonia, from what you’ve said it sounds like your foreclosure was on your personal residence. If that’s the case, you don’t need to report it. If it was sold at a profit, then the lender didn’t have to forgive any debt (which triggers the cancellation of debt and Form 1099-C).

    In other words, you won’t get a Form 1099-C and most likely have nothing further to report. I am surprised you didn’t get a Form 1099-S in the year of sale, but the lender was probably confused.

  17. Antonia says:

    BTW I forgot to add that I am in Virginia.

  18. Antonia says:

    Diane,
    I just found this site and I have had this one question that nobody can seem to answer for me. My home was foreclosed on in 2009 and then it was sold for a profit. I then received a 1099a last year but never a 1099c. When I had my taxes done for me the lady said I had to put the 1099a on my taxes, but that nothing really happens until I get my 1099c. What happens now that another year has gone by does and I still havent received it?

  19. candy says:

    Diane,

    I recieved a 1099-a on out foreclosure june 2010. It was marked that we are responsible for the loan, does us getting this 1099-a mean that later on in the future we could get a 1099-c?

  20. Diane Kennedy says:

    REMINDER! Free, information-packed teleseminar Saturday, February 5, 2011 “You Got a Form 1099-A (or Form 1099-C) – Now what?”

    9 am PST, Noon EST

    Sign up at http://www.DianesSeminars.com

  21. Diane Kennedy says:

    Harry says: “We had Florida second home > Payment problems > Lender file Les Pendens > Property was sold in a short sale > Lender filed Satisfaction of Mortgage with the court > we received a 1099-C.

    Q – are we still liable for a DF?”

    I am not sure what a DF is. Is that debt forgiveness? If so, you do have debt forgiveness income. That’s what was shown on the Form 1099-C. That will need to be shown as ordinary income on your tax return. If you have an exemption due to a primary residence, insolvency or bankruptcy, file Form 982 with your return.

  22. Diane Kennedy says:

    Jill says: I have a question. We short saled our property in November of 2010. For both mortgages, they stated in writing that they would not pursue us in the future for repayment of any debt and they would not pursue us for financial repayment at any time.
    However, we received our 1099-C for both are mortgages that were cancelled. One line 5, one marked yes that the borrower was personally liable for the repayment of debt and the other was marked no. Per our accountant, if it’s marked yes that means that the lender can come after us for repayment, so it was marked incorrectly and I contacted the lender. Is there anything else I can do?

    Jill, I agree with your accountant. They wrote of the debt. That’s why they sent you a Form 1099-C and you also have an agreement that they would from the short sale.

    They made a mistake and all you can do is call them. But to be honest, I doubt that they will change it. We’re hearing about a LOT of mistakes these days.

  23. Jill says:

    Hi Diane- I have a question. We short saled our property in November of 2010. For both mortgages, they stated in writing that they would not pursue us in the future for repayment of any debt and they would not pursue us for financial repayment at any time.
    However, we received our 1099-C for both are mortgages that were cancelled. One line 5, one marked yes that the borrower was personally liable for the repayment of debt and the other was marked no. Per our accountant, if it’s marked yes that means that the lender can come after us for repayment, so it was marked incorrectly and I contacted the lender. Is there anything else I can do?

  24. Diane Kennedy says:

    Scot,

    Yes, the lender is supposed to give you a Form 1099-C that reports the amount of forgiven debt.

  25. Diane Kennedy says:

    BREAKING NEWS! Please join us on Sat, Feb 5th for a FREE information-packed teleseminar “You Got a Form 1099-A (or Form 1099-C) – Now What?” We’ll take your questions live. Sign up at http://www.DianesSeminars.com

  26. Diane Kennedy says:

    John, I would call them. They might have sent it and it’s lost in the mail. If you don’t report it, then the IRS is going to ask. That’s something you want to avoid if you can.

  27. john ward says:

    If I dont get a 1099 by lets say mid Feb…Is it assumed the debt is forgiven? How late should i wait to see If in fact I do get one? Do you suggest calling the lender?

  28. Scot says:

    Diane,

    I am in the process of going thru a short sale on an rental property in Florida. A representative of the attorney’s office that I am working with made a statement to me that “by law” the lender is obligated to send me a 1099 for the forgiven amount. Is that correct ? Or do they have the choice of doing this ?

  29. Diane Kennedy says:

    Anna,

    If do a search through the comments on the numerous Form 1099-A and Form 1099-C blog posts I’ve done, you’ll see this issue has come up more than once. I’m sorry you’re caught up in this. If the lender gave you a Form 1099-C, that indicates they forgave the debt. if they’re now saying they didn’t, then it’s time to get an attorney involved.

  30. Anna says:

    P.S. We are by the way from California.

  31. Anna says:

    Hi Diane,

    Our primary residence was forclosed in March 2010, unfortunately, this involves a 2nd mortgage for the amount of $46K with PNC Bank. Late last year, we have received a letter from the bank, that the loan has now been referred to a collection agency, and months passed by and we did not hear from either the bank or the collection agency, however now we have received a 1099-C from the same bank for the amount of $52K. We have contacted the bank and ask them if our loan has been referred to a collection agency and if so, why were we sent a 1099-C. We were advised that it doesn’t show on their record that the loan has been canceled and that the 1099-C is just for IRS purposes and that we are still legally responsible to pay for the loan. I am now confused, so is the loan canceled or not? If not then if we include the $52K on our taxes for 2010 as additional income, do we still re-pay the $52K in the end?

  32. Diane Kennedy says:

    John,

    To be considered ‘put in service’, which is what you want here, the property needs to have been rented out. So, let’s say you had a vacation home in 2009, rented it in 2010 and then it went in a short sale. In that case, you’d have a full deductible rental loss (assuming there is a loss, that you haven’t aggregated and some other issues).

    Talk to your tax professional. There are some strict rules here you don’t want to mess up on.

  33. Diane Kennedy says:

    Jemari,

    You really can’t report it until you get the Form 1099-C. Give the lender a call (and be prepared to be persistent and patient) and find out if they intend to send you a Form 1099-C for 2010.

    If not, there is nothing for you to report on the debt forgiveness.

  34. john ward says:

    When you say did you turn it into an investment property first,what does this exactley mean? Isnt all homes besides your primary considered investment property automatically by the govt?

    If that is not the case couldnt I just say I used it as a rental property up until the time of the short sale for the year 2010?

  35. Jemari says:

    oh forgot to say property was in California

  36. Jemari says:

    My property was foreclosed on in June 2010 but it has not yet sold by the bank. I did not receive a 1099c from lender. What do I do with 2010 taxes? How long does the debt forgiveness act last and if I get 1099 c after that date but was foreclosed on in 2010 will I be still be eligible.

  37. Diane Kennedy says:

    John, afraid not so good news.

    Based on your numbers, you’ll have debt forgiveness (COD income) of $85,000 ($195K – ($85K + $25K). That will be considered ordinary income.

    Did you turn it into an investment property first? If you’re not insolvent and you don’t declare bankruptcy, I think you’re stuck with the tax on this one. Unfortunately, you can’t take a loss on the sale of a second home if it was not used as a rental property as well.

  38. john ward says:

    Did a short sale on my second home in June of 2010..Had it for 3 years..
    195,000 was left on the mortgage and the agreed upon price was market value of 85,000…I signed a promissorey note of 25,000 at closing to be paid over the next 15 years…

    I was not insolvent at the time…Will I get a 1099 for the remaining 85,000? Market Value at the time of selling was only 85,000..Does that matter?

  39. Hey Diane,

    can you shoot me an e-mail with your contact information. i am trying to find a tax cpa/attorney for my clients. I do about 50 short sales a year, but want my client to be able to consult with the correct cpa/attorney to make sure what i am telling them is accurate.

    thank you,

    jason halliday
    remax
    colorado

  40. Michelle, I’m sorry you got caught up in that ‘refi’ scam. And it really is a scam that I’ve seen too many times. All these ‘bail-out’ modifications did is increase the principal.

    The question will be what was your original indebtedness? In other words, how much did you originally pay for the house and how much was the original loan(s). From that we can figure out if you qualify for the 2007 Act exemption.

    Insolvency means that you owe more than you own. So, if you don’t have any other assets or investments, you could very well qualify for this exemption as well. It’s not so much income – it’s about what you own.

    If you could share a few numbers here, I think I can give you some peace of mind.

  41. Michelle E. says:

    Hello, I am currently in a 2nd forclosure on my primary residence in Mi. Both my husband and I lost our jobs in 2008 and we are both back in school for new careers. We already modified with our lender July 2009 (who is a local credit union) who put us back into the same situation as before……high payment and not enough income. Although they lowered our rate, combined our first and second mortgages (both with the credit union), they slapped on 25k in late fees, back owed and new escrows, and interest to the principle. We owe 235k and the FMV is 175K. My question is, being a non judicial state, will we have to pay taxes on this? I am not sure the differences on the 1009A or 1099C. With our income being so low currently will we be able to claim insolvency?

  42. I’m sure that we’ll get Megan to comment on the form.

    Roni, my understanding is that the foreclosure would still leave you open for personal debt collection.

    One thing to check, though, is whether your state law allows it. Some states do not allow the lender to come back after you. For example, in some circumstances AZ does not. Check with a lawyer to be sure.

    The tax consequences will be the same whether it is a short sale or it is a foreclosure.

  43. roni lopez moore says:

    How does one get an estoppel during the short sale process for an investment property? Does Megan have a form that can be submitted for lender to fill out?
    I have a short sale with a loss of $125K that lender has agreed to, but they are not providing an estoppel. I am challenging them on this point. I would probably be better off letting them foreclose than leaving door open for $125K personal debt collection later. The tax consequences would be the same whether short sale or foreclosure right?

  44. The short sale will be in 2010, I’m assuming. The 2007 Act included any debt forgiveness through 2010, so you’ll be okay on the date.

    And yes, it does cover debt forgiveness on short sales.

    Just curious – are you getting an estoppel as part of the short sale process? That means that the lender agrees to not later pursue you for the debt and means that the debt is actually forgiven.

    One more caveat: Make sure that the debt is original indebtedness. In other words, if you had original debt of $200K and refi’d it for $300K to pull out cash, you’d only have part of the debt forgiveness covered by the act.

  45. Nicole Katz says:

    I am currently going through a short sale and will be hit with a loss of around $100K. My accountant in MA advised me that as my primary residence I would not be required to pay any tax on the 1099 that I received due to the tax forgiveness act of 2007 which is not through 2012. Is this act just for foreclosures or also for short sales?? Please help.