Thursday, February 3, 2011
Short Sales & Foreclosures: Mortgage Forgiveness Relief Act
We just had a past client email us and ask us about a 1099 that they received in the mail from their mortgage company - their question was "what is this for and why?" We thought that given the amount of foreclosures and short sales that are taking place these days, this question may apply to many so why not post the answer right here on our blog...
Our past clients received a 1099 because sadly, their home was foreclosed on in 2010. Anytime you owe a debt to someone else (whether it be a mortgage, credit card company, etc) and they cancel or forgive that debt, the discharged amount may be taxable. When this happens, they will issue a 1099-C for the discharged amount; however, the Mortgage Foregiveness Relief Act was rolled out in 2007 and in some cases, it forgives certain types of cancellation of debt. Those who have sold via short sale or who were foreclosed on since 2007 may be eligible for this forgiveness. For more information, visit: http://www.irs.gov/individuals/article/0,,id=179414,00.html
This provision applies until 2012. If your debt cancellation does fall in the guidelines to be forgiven, it still has to be reported to the IRS. Now for the disclaimer: We're not tax professionals/experts or legal advisors, so we can't advise you on the best way to file, etc. We just want you to be aware of the Mortgage Foregiveness Relief Act so that if you think it may help you, you can be sure to talk to your CPA about it.