Here's what a blank form looks like. In a Short Sale or Foreclosure this is what the Lender might chose to file (a foreclosure might send you a 1099-A too).

Like any other 1099, one copy goes to the taxpayer (you) and another copy goes to the IRS.

(click to enlarge)

The most important box is

Box Number 2: Amount of Debt Canceled

This is not your loan balance. It's your loan balance, plus every single little nit picking fee the Lender can tack on. Add penalty and fees too!

In a Foreclosure, these fees and charges are pretty much left unchecked by anyone from the homeowner's side.

In a Short Sale, either the Listing Agent or a Negotiator can help negotiate a reduction of these charges. In fact everything in a Short Sale is negotiable including the very issuance of this 1099.

Remember, the Lender is reporting this to both you and the IRS as "income". While you may or may not fall under the protection of the Mortgage Forgiveness Debt Relief Act (HR 3648), there is also the State tax consequences to be considered.

When I hear homeowners who say they don't care about a short sale, "just let it go to foreclosure", because they are not going to gain anything from it - this is one of the first gains I think they don't see.

I can see that. If you didn't receive a 1099-C, because you completed a short sale and your Negotiator minimized Box 2 or negated the issuance of the 1099 all together, would you notice?

Maybe not.

But I can say, TurboTax (or your tax professional) would notice more if they didn't.

Labels: Short Sale Negotiation