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1099C Tax Questions

Posted on: 15th Feb, 2011 04:01 pm
I defaulted on my mortgage in Sept 2008, was foreclosed on in January 2009 and after a lengthy process completed a Deed-in-Lieu with my bank which completed April 19, 2010. I just received a 1099C which is for cancellation of debt; While I understand that since this is not a 1099A which I would have received in the event that I made an agreement where they could pursue me for deficiency, the 1099C I was sent has some unusual details. For example, the debt canceled is $123,344, when my loan amount was $99,000. I presume this is for the legal fees, taxes, insurance, etc that they paid while I was in default. The Interest is listed as $12,649 and oddly the fair market value of the home was listed as $0, though the lender sold the property for $78,000 and change within 2 months of the DIL (probably due to the generally good and well renovated condition of the interior of the home).

My questions concern my tax liability. In reading other posts I believe that under the Mortgage Forgiveness Debt Relief Act of 2007 any DIL debt discharged is forgiven under circumstances I believe I meet as I I lived in the home nonstop from August 2005 to April 19, 2010, although the mortgage company had the property listed as abandoned for several months due to sending their process server to the WRONG property who then reported my house as abandoned as he went to the abandoned property across the street and reported this back to the bank.

1.) could their records, though in error, that my property was abandoned in any way hurt me or is that info not forwarded to the IRS? I'll have no trouble getting affidavits that I lived their till the DIL was over.

2.) Essentially, since they listed the property value at 0 when they themselves recovered $78,000 almost immediately after the DIL, would the tax liability not be between the $123K and the $78K they got for it?

3.) How does the $12,649 in interest figure into any tax liability or in what I report?

4.) I've been using Turbo Tax for the last several years and have not seen anything on it regarding this type of situation...any recommendations?

5.) based on the scenario I've laid out, is there anything else I need to be aware of to avoid any tax liabilities, other than to document the sale price of the home after the DIL?

6.) Even if I am covered under the tax act and owe no tax, should I pursue them correcting the fair market value to reflect what the house sold for....are there other benefits to having that info corrected before filing my taxes with this currently inaccurate document, such as future tax situations?

7.) I have an at-home business which operated prior to the foreclosure thru DIL process. In prior years I deducted about 11% of my home's related expenses as my office made up 11% of the floorspace (Turbotax did this for me). How will this 1099C impact my deductions for 2009 and 2010?
hi jmichaelbrugger,

you will receive the 1099c form when your deficient balance have been forgiven by the mortgage lender. if it was your primary property, then depending upon the mortgage debt relief act, you won't be liable to pay the taxes on the forgiven debt. you can ask your lender to update their records that you stayed in the property until deed in lieu of foreclosure.

the taxes will depend upon the difference of amount between the sale proceeds and the amount of money you owed on the mortgage. for further information in this regard, take the help of a tax adviser and he or she will be able to guide you in this matter.

Posted on: 15th Feb, 2011 08:06 pm
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