If you are like the small, but growing army of folks who have dumped their homes back on the banks in a short sale—and are feeling pretty good that you managed to get the bank to forgive all that debt you owed—stand-by! The IRS is about to dump an even bigger one on YOU!
Ever hear of a 1099-C? Not sure? Well, most people probably haven’t. But some of you will. Soon.
The 1099-C (pdf) is the form you should get for the total amount your lender lost on the deal for your house. And, guess what? The IRS has its own view on this: It considers this “loan forgiveness” as a source of taxable income for you.
That’s right. If you short sold on your house, you are more than likely to get a bill from the IRS to pay up taxes on the amount of the forgiven debt or else!
Come on, you didn’t really think it would be THAT easy? Did you?
Now, while I am not an accountant (I don’t even play one on TV)–and, DISCLAIMER ALERT!!! DISCLAIMER ALERT!!!, you SHOULD consult with one! I can tell you there are some handy but painful ways to avoid coughing up the money to the feds you saved on your short sale.
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