Got a tax question? You can submit them to USTaxAid. Here’s one on debt forgiveness and tax. It was pretty long, so I did condense it.
Question: The mortgage company (GMAC) foreclosed on a rental condo 1/5/2010….. The mortgage company did not confirm the sale so they are barred by state law from collecting on the deficiency.
We got a 1099-C for this property with an identifiable event date of 2/26/13. How do we handle this since the mortgage company never confirmed the sale and therefore as of 2/5/10 we were not liable for any deficiency?”
Answer: Let’s stop there. I am not an expert in state law, and since every state is different, I could be misreading what you wrote. As I read it, though, the lender was barred from collecting on the debt. Therefore, the only solution they have is to forgive the debt. That would be why they sent you the Form 1099-C. It reports the debt that is forgiven. If the legal question was whether there was debt at all, then they wouldn’t have sent you the form. But if the legal question was whether they could collect it, then they responded correctly.
Question: “Do we file a Form 982 and submit our letters and our attorneys letters along with our 2013 taxes to show that we do not owe the debt they allegedly cancelled?”
Answer: The Form 982 is used to show why you don’t have to pay tax on the COD income. In this case, you’d need to show a reason such as insolvency or bankruptcy. In later information, you said that you were in Georgia. Georgia has similar laws to the federal govt on COD income and taxation.
If you have foreclosure or short sales, there are going to be some complicated tax solutions. The Form 982 is not an easy form to fill out.
If you are in a similar situation, it’s always best to go into it with a tax strategy. If we can help, give us a call at 888-592-4769 or drop an email to Richard@USTaxAid.com.