2010 tax return and 1099 --- will I get one?

[sillywalks]

If the bank just received their confirmation of foreclosure on December 15th and have not sued me for the deficiency (but have indicated they will) -- does this mean I will not receive a 1099 at this point? I would rather not complicate my taxes!

Thanks!

[tcreegan]

Hi sillywalks,

No 1099 on anything discharged in the BK.

And...even if you get a 1099 on a pre-petition deficiency it is most likely not a problem. Insolvent debtors don't have to include it as income and if it was on your primary residence you don't count it as income (well, up to 2 million anyhow) (Mortgage Relief Act 2007)

Now this doesn't mean you won't get a 1099 in the mail...you just don't include it in your income on your tax return. The lender can write the 1099 amount off their books as a loss, reducing their taxes.

So a little complication....but no extra tax...not bad for the IRS..

Tom in Colo

[sillywalks]

Hi sillywalks,

No 1099 on anything discharged in the BK.

And...even if you get a 1099 on a pre-petition deficiency it is most likely not a problem. Insolvent debtors don't have to include it as income and if it was on your primary residence you don't count it as income (well, up to 2 million anyhow) (Mortgage Relief Act 2007)

Now this doesn't mean you won't get a 1099 in the mail...you just don't include it in your income on your tax return. The lender can write the 1099 amount off their books as a loss, reducing their taxes.

So a little complication....but no extra tax...not bad for the IRS..

Tom in Colo

Hey Tom! The house that was foreclosed was actually not my primary home -- it was the house my ex and I owned that I took over after the divorce. I am insolvent (I assume, since I believe I qualify for chapter 7), but I am hoping not to have to prove that on my tax return?!!

I was hoping since the bank is planning on pursuing the deficiency, even though they have not yet sued me for it, I would not get a 1099. If I did get a 1099, that would mean they decided not to pursue the deficiency, right?

[Flamingo]

Just because you are insolvent and have to file for Chapter 7 does not mean you are insolvent under IRS standards. Many people find out the opposite. I would suggest if you get a 1099 for last year or this year that you contact a tax professional to handle your taxes since those that attempt to prove insolvency with the IRS have a much higher chance of getting audited. Also, just because you do not receive a 1099 does not mean you are not responsible for any deficiency - I suggest contacting a tax professional to go over your situation.

[HHM]

Keep in mind, the requirements to "issue" a 1099-C and the requirement to "pay" tax on a 1099-C are different. Most lenders won't issue a 1099-C when the debtor filed BK; but they CAN. Under a strict reading of the instructions for issuing a 1099-C lender should issue it even with the BK. The IRS code really puts the burden on the tax payer to tell the IRS that he is not liable for the debt, i.e. discharged in BK, insolvent, debt on primary residence etc.

A 1099-C is merely a reporting document. All it does is report to the IRS that a "potential" taxable event has occurred. It is between the taxpayer and the IRS whether there is any tax due.

[sillywalks]

Keep in mind, the requirements to "issue" a 1099-C and the requirement to "pay" tax on a 1099-C are different. Most lenders won't issue a 1099-C when the debtor filed BK; but they CAN. Under a strict reading of the instructions for issuing a 1099-C lender should issue it even with the BK. The IRS code really puts the burden on the tax payer to tell the IRS that he is not liable for the debt, i.e. discharged in BK, insolvent, debt on primary residence etc.

A 1099-C is merely a reporting document. All it does is report to the IRS that a "potential" taxable event has occurred. It is between the taxpayer and the IRS whether there is any tax due.

<sigh> Like bankruptcy is not complicated enough!

If the bank is planning to sue me for the deficiency, then they would not (could not?) send me a 1099, right?

[HHM]

<sigh> Like bankruptcy is not complicated enough!

If the bank is planning to sue me for the deficiency, then they would not (could not?) send me a 1099, right?

Not necessarily. There is a way the bank can do both, but the exception is too difficult to explain and doesn't come up that often. If you haven't filed BK, then you must either be insolvent or the residence qualifies under the 2007 mortgage debt forgiveness act. It is the banks choice whether they want to come after you or forgive the debt. Also, depending on your state, they may not need to sue you. They can still try to collect it with phone calls, letters, and pressure. At some point, they may sue you, but that could be a few years down the road.

[sillywalks]

Not necessarily. There is a way the bank can do both, but the exception is too difficult to explain and doesn't come up that often. If you haven't filed BK, then you must either be insolvent or the residence qualifies under the 2007 mortgage debt forgiveness act. It is the banks choice whether they want to come after you or forgive the debt. Also, depending on your state, they may not need to sue you. They can still try to collect it with phone calls, letters, and pressure. At some point, they may sue you, but that could be a few years down the road.

HHM, I really appreciate you helping me understand this! I know that in GA, in order to pursue the deficiency, a bank has to go to court and get a confirmation of the foreclosure -- which the bank did on December 15th. Do you think they would have done this if they were going to write off the deficit? I took it as a clear sign they would pursue the deficiency...but I could easily be wrong. Also, I did speak with the bank at the time of the foreclosure and I was told that the bank (SCBT) has a policy of pursuing deficiencies.