If you are considering a real estate short sale of your home, you should be aware that you might receive a form 1099-C for the amount of the lender's losses.
This is considered loan forgiveness in the eyes of the IRS. If you have other assets such as savings and you are not insolvent, you may end up being responsible to pay ordinary taxes on the amount of the 1099-C.
If you settle a debt with a creditor for less than the full amount owed, you may be required to report this forgiven debt as regular income, with certain important exceptions.
The forgiven debts include money owed after foreclosure or property repossession or credit accounts that you don't pay.
There are exceptions noted below:
If a lender forgives or writes off $600 or more of a debt's principal (the amount not including interest or fees) must send you and the IRS a Form 1099-C at the end of the year. When you file your tax return for the tax year in which your debt was written off, the IRS will require that you report the amount on the form as income.
Fortunately, the Obama administration passed a law stating that if you are short selling your primary residence, you may be exempt from paying taxes even if a 1099 is submitted to the IRS by the lender.
While you may not have received this form from the creditor, the creditor may have submitted one to the IRS anyway. If you don’t list the income on your tax return and the IRS has the information of the transaction on file, you could get a tax bill or, worse, an audit notice. This could end up costing you more than just the original tax bill.
There are several exceptions stated in the Internal Revenue Code. For example, you do not have to report the income on your tax return if the write off of the debt is intended as a gift, you discharge the debt in bankruptcy, or you were insolvent before the creditor agreed to settle or write off the debt. You should consult a qualified tax and legal counsel to see if these circumstances apply.
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334 Bountiful Drive
Moncks Corner, SC 29461
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MLS# 24012653 / Active
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2641 Dutchman Drive
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26 Lemoyne Lane
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8139 Shadow Oak Drive
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MLS# 24012644 / Active
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MLS# 24012643 / Active
Enjoy the peace and quiet that this newly constructed home offers in a secure and pastoral setting. Only minutes from Charleston, this community of...
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1267 Dingle Road
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MLS# 24012640 / Active
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1124 Dickson Avenue
Hanahan, SC 29410
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MLS# 24012639 / Active
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1334 Old Rosebud Trail
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MLS# 24012638 / Active
Prepare to be dazzled by this lovely home situated on more than 3 acres in peaceful Pepper Plantation. Complete with a huge front porch, pool, spa,...
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Welcome to Horizons, an exclusive 55+ gated active adult community situated in the highly desirable Summers Corner masterplan. Residents enjoy low-...
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MLS# 24012634 / Active
Welcome to 104 Astor Court! This charming single-story home, nestled at the end of a cul-de-sac, is conveniently close to everything that Downtown ...
3190 Morningdale Drive
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MLS# 24012633 / Active
Welcome to this charming single story home in the Ivy Hall community in Mt Pleasant! This lovely one-story home was just freshly painted white thro...
1332 S Edgewater Drive
Charleston, SC 29407
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MLS# 24012630 / Active
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MLS# 24012629 / Active
Come live your best life in the heart of beautiful Waterside in Cane Bay! This beautiful four bedroom, three and a half bath home is nestled in a c...
305 Factors Walk
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MLS# 24012628 / Active
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ALL NEW Completely Remodeled Beautiful Bottom Floor Condo 2 Bedroom 2 BathAll new Tile Floors, New Kitchen Cabinets, New Never used Appliances, Gra...
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MLS# 24012620 / Active
Beautifully updated brick ranch with NO HOA just 5 minutes from Downtown Charleston! Situated on a quiet street in the Moreland neighborhood of Wes...
2158 Medway Road
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MLS# 24012619 / Active
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319 Regatta Way
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This home shouldn't be missed! Stunning home built in 2016 with absolutely no detail spared. An exciting opportunity to purchase a Tangerly Oak flo...
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