About Those 1099s for Canceled Debt

I've heard that some short sale banks are refusing to send out 1099s for canceled debt to certain sellers because those banks want to reserve the right to go after the seller for repayment. The reasoning is if they issued a 1099, it could be interpreted that the debt is forgiven in those instances when the bank intends to pursue.

Not every seller of a short sale is exempt from canceled debt. There are specific I.R.S. rules that govern whether a seller owes taxes on canceled debt. The fact that the home was your personal residence is not a sole qualifying factor. If you don't receive a 1099 after a short sale, that's one thing, but it's another if you've refinanced or taken out cash from the home that was not used to substantially improve the home. Canceled debt can come back to bite you. You should always discuss canceled debt consequences with a tax accountant prior to your short sale.

More Articles by Elizabeth Weintraub:

• Short Sale Myths
  
• Tax Deductions for Uninsured Home Losses
  
• Tax Breaks for Home Sellers

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_{At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.}