The Mortgage Forgiveness Debt Relief Act
and Debt Cancellation
If you owe a debt and its canceled or forgiven, the canceled amount may be taxable “imputed tax”. When we list and sell your property as a “ short sale” the reduction of Tax Attributes Due to Discharge of Indebtedness rule applies.
Debt is reduced through short sale pre- foreclosure, qualifies for relief. Up to $2 million of forgiven debt eligible for exclusion $1M if filing separately. Anytime you sell for less than purchased price file a cancellation of debit avoid being taxed on money you did not get. It’s essential to report on appropriate forms. Click here for Form 982 and bring it to your accountant.
Up to $2 million of forgiven debt is eligible for exclusion ($1 million if married filing separately). The lender is usually required to report the amount of the canceled debt is provided to by the lender on the IRS Form 1099-C.
Loss not from a residence? After the sale you will be taxed on the amount you lost unless you address the loss properly. Consult your accountant or tax attorney. IRS rules for “loss carry back/carry forward” apply.
A tax loss carry back is a provision that allows an individual or a business to use a net operating loss in one year to offset a profit in one or more previous years.
A tax loss carry forward works the same as a tax loss carry back, carrying the tax loss over to a future year of profit.
Losses used for these provisions must be net operating losses, not losses on investments.
Debt forgiveness from your residential short sale qualifies for debt forgiveness form 982 or you will pay “imputed” tax. Your mortgage holder provides the 1099C form
Loss from other property and property owed by a businesses, not your residence, have the the lien holder provide the 1099C form. IRS rules for “loss carry back/carry forward” apply. Have your account file accordingly.