I was in big trouble, seriously behind on my mortgage.The bank was set to foreclose... Then a miracle ...
The bank saved me, they renegotiated me to a new loan and forgave $10,000 of debt.
BUT DAMN! The IRS wants to tax me on the $10,000!!
Yup, Right now that's the way it works.
Ok let's say you are in a similar situation and the lender WON'T renegotiate.
But, they agree to a SHORT SELL. Meaning instead of losing your house, you sell your house. You sell it, however, for $15,000 less than what is owed on the mortgage, hence "SHORT SELL."
But hey, the lender says, "that's cool well take what ya' got and we will forgive you for the $15,000!!" Boy, at this point you are pretty pleased. Until ...
The IRS lets you know they have received a 1099 from the lender for the $15,000 and now the IRS considers that $15,000 as INCOME!!!
The solution: Pray for The Mortgage Cancellation Tax Relief Act of 2007 (HR1876)
Basically this bill will have the sensitivity and compassion for all you have gone through this degrading, stressful and just plain awful experience. This bill would relieve you from any IRS obligation. But until it passes, however, know the consequences.
A nod to ken harney