Post a new topic
    4 Replies Latest reply on Apr 22, 2011 10:02 AM by Barky Dog

    1099-C Forgiveness of Mortgage Debt

    the_hammer Wayfarer

      What would be the tax requirements for someone when they recieve a 1009-C (forgiveness of debt) because they lost their home (foreclusure, short sale, etc.) when they were "upside down" and the bank forgave the difference?  For example, he received a 1099-C for $70,000 since the remaining mortgage balance was $200,000 and the current market value of the home was $130,000.  Does the $70,000 have to be included in his current year income (similiar to the treatment for other debt forgiveness...ie credit cards)?

        • 1099-C Forgiveness of Mortgage Debt
          LUCKIEST Guide

          You got a 1099-C form because your lender decided it can not recover what you owe on your  mortgage loan and is therefore canceling or forgiving a portion of your  debt. 

          This typically occurs when people lose their homes in foreclosure, abandon them or give them to their lenders.

          The  part of your mortgage debt that is canceled is generally the difference  between what you owed on your mortgage and the home’s value on the open  market.

          Thanks to the Mortgage Forgiveness Debt Relief Act of  2007, most borrowers whose mortgage debt on their primary residence that  is cancelled between Jan. 1, 2007 and the end of 2012 will not have to pay federal taxes on it.

          1 of 1 people found this helpful
            • 1099-C Forgiveness of Mortgage Debt
              the_hammer Wayfarer

              Are there any state (California) taxes that have to be paid on it?

                • Re: 1099-C Forgiveness of Mortgage Debt
                  Barky Dog Tracker

                  Hey Hammer,

                   

                  You might be in luck regarding your California taxes.  I found an article here which could be helpful to you.  Below is an expert.

                   

                  Regardless, you should really see a CPA for guidance on your situation.  That would probably really pay for itself in reduced taxes and peace of mind.  Good Luck!

                   

                  California has enacted relief legislation for cancellation of mortgage debt relating to the acquisition of a principal residence.

                  Governor Schwarzenegger signed SB 401 (Wolk), the Conformity Act of 2010, on April 12, 2010, while we tax return preparers were busy finishing income tax returns and extension forms.

                   

                  Effective for taxable years 2009 through 2012, the maximum qualified principal residence indebtedness eligible for relief is $400,000 for taxpayers who file as married or registered domestic partners filing a separate return and $800,000 for taxpayers who file joint returns, single persons, head of household and qualifying widow or widower (other individual taxpayers). The federal limits are $1 million for married persons filing a separate income tax return or $2 million for other individual taxpayers.

                   

                  The debt relief that can be excluded from taxable income is limited to $250,000 for married or registered domestic partners filing a separate return and $500,000 for other individual taxpayers. The federal exclusion is limited to the amount of qualified principal residence indebtedness.

                  1 of 1 people found this helpful