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Will my lender send me a 1099 on the debt forgiven?

Sep 11, 2012
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In 2007 the U.S. Congress passed the Mortgage Debt Forgiveness Relief Act and it is in effect until 2012. As a result of that act, borrowers no longer pay taxes on the debt forgiven on their primary residence. So if the property is your primary residence, then no, you should not receive a 1099 for the debt forgiven or have to pay any taxes on the forgive debt.

For investment property, the lender does have the right to report to the IRS the amount they have ‘forgiven’ in a Short Sale transaction, the amount of the resulting tax will be far less than the debt forgiven. For example, we had one client who did get a 1099 for $30,000 forgiven. This resulted in additional taxes of $1,300 for that year. The resulting tax is far superior to paying the difference of the debt. Also, if the property is in foreclosure, the foreclosure would have a much more devastating affect on you than the amount of the 1099.

For more information go here, or talk to your CPA: http://www.irs.gov/individuals/article/0,,id=179414,00.html

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