Form 1099-C Received 3 Years Late – Now What?

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I received this question at the USTaxAid home page. There is a lot of confusion still about Form 1099-As and Form 1099-Cs, which are given out when a property is foreclosed on.

Here is the question that was received:

“We had owned and lived in a house and refinanced in June 2006 with provident back. They did a 80/20 loan. My wife and I are both appraisers and do to the real estate market we had to do a loan mod in June 2009. We did not pay the second since 2008 and it has been five and a half years. Provident would not let us short sale or give us a good loan mod and foreclosed on us on March 19, 2012. GMAC who was the 1st, provident was the servicer and held the 2nd. My understanding is that they only have three years to 1099-C us. The 1099c is for $63,790.66 is dated 12/31/2015 and this will again hurt us as we are finally getting back on our feet. “

It sounds like you are the victim of the ‘shadow inventory’ where bankers and lenders start the foreclosure process but don’t complete it until the market recovers. Although the foreclosure may seem like it occurred in 2012, it actually wasn’t completed until 2015. Conversely, they may have simply held the property in inventory until the prices came up and they could sell the property at a better price. They didn’t issue a Form 1099-C until they knew how much the house would sell for.

There are a couple of things to check first.

Is the Form 1099-C correct? Check the public records. When was the property sold and for how much? That will tell you what year you should have received the Form 1099-C in and whether it is correctly calculated.

One additional wrinkle that could delay a Form 1099-C is whether the lender has recourse against you. Some states don’t allow recourse and so the debt is immediately considered cancelled. If you’re in one of those states, the debt would have been cancelled in the year it was actually foreclosed in and you lost title. Again, check when this actually occurred if you’re in a non-recourse state.

If you’re a recourse state, the lender may be correct in issuing you a late 1099-C. Their argument will be that although they knew how much the write off would be, they attempted to collect it and it took some time before they knew it was a bad debt. When they knew that, they took the write off and you got the Form 1099-C.

I’m not aware of a 3 year rule. That could be something specific to the state in which the property is located.

Let’s assume that the 1099-C is correct. It shows that you owe tax on COD income in 2015.

The next possible solution is to see whether the provisions of the Mortgage Debt Relief Act of 2007 apply.

From page 9 of the below-referenced IRS manual, you can exclude the income from your taxable income if:

The total debt was secured by your primary residence, the total amount was less than $2 million (total with other loans), the amount was used to buy, build or substantially improve your main home and the total is less than the amount of the old mortgage principal from when you purchased the property.

You can read more on page 9 of

If this is applicable, use Form 982 to report the 1099-C.

If the Form 1099-C is wrong contact the lender and make sure you have the necessary document back-up.

If you’re insolvent or filed bankruptcy, you also likely have an exclusion for the tax on the Form 1099-C.

In summary, there are a lot of possible options for handling the tax. You may owe tax on the debt forgiveness, but it’s also likely that you’ll meet one of the above listed exclusions.

Good luck!

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