Gain on short sales Similar to a foreclosure, any debt that your mortgage lender cancels because of a short sale is taxable only if the terms of your mortgage hold you personally liable for the full amount of the loan. Regardless of the tax consequences, your lender will report the debt cancellation on a 1099-C form.

Income Tax Consequences Generally, California tax law requires homeowners to report debt forgiven during a short sale. This forgiven debt is considered income. State tax law also forbids taxpayers from claiming deductions for losses resulting from a short sale.

Do you need a 1099c after a short sale?

IRS Form 1099-C. If you’ve short-sold your home, and the lender forgave any post-short sale deficiencies, you’ll need to report that debt forgiveness on your tax return. Your lender will also send a 1099-C to the IRS in addition to the 1099-C it gave you after your short sale.

When do I need to use a 1099-C form?

What Is a 1099-C Form? Form 1099-C is a tax form required by the IRS in certain situations where your debts have been forgiven or canceled. The IRS requires a 1099-C form for certain acts of debt forgiveness because it considers that forgiven debt as a form of income.

When to file Form 1099-C, cancellation of debt?

Do not file Form 1099-C when fraudulent debt is canceled due to identity theft. Form 1099-C is to be used only for cancellations of debts for which the debtor actually incurred the underlying debt. File Form 1099-C, Cancellation of Debt, for each debtor for whom you canceled a debt owed to you of $600 or more if:

What should I know about the insolvency exception for 1099-C?

See IRS Publication 4681 for more information about insolvency. This is a worksheet that is prepared to determine if you can qualify for eliminating taxable income form a cancelled debt (Form 1099-C). Keep it with your tax files to show proof, as well as any other documentation to substantiate it, should you need it later. 0