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!
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.