Here Come The 1099-Cs Turning YOUR Short Sale Into A Big Headache


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.

If you are bankrupt…like really…as in court discharged…you will probably get a pass from the IRS on this one. Also, if you were legally broke (insolvent) BEFORE any agreement was actually reached on the value of the short sale you may not have to pony up a dime.

Like they say…the only sure things are death and taxes. So, what the hell did you expect?

Update: For more information, please see the following:

About Author

Charles is currently reporting for KNX Radio in Los Angeles, is the co-author of the book No Time To Think, and can be found commenting about the news on his blog, The Feldman Blog, as well as on The Huffington Post.


  1. This becomes a touchy subject and one I don’t think you should be discussing without being an expert in taxes, regardless if you do or don’t play one on t.v

    Whats the difference between 1099-A and 1099-C ?

    If, by the nature of your post, you are suggesting that people shouldn’t execute short sales because of the 1099-C and the taxed amount then I would really love to hear what you suggest people do in regards to a 1099-A

    I think an Real Estate Tax Expert should really be the on to answer that though

  2. Umm, no.

    From the IRS,

    “The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

    This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.”,,id=179414,00.html

    Simply put, if you completed a short sale between 2007-2012 on your personal residence up to $2 million ($1 million if married filling separately) the debt will not be treated as income subject to taxation.

    DISCLAIMER ALERT, DISCLAIMER ALERT: I am not a tax professional and individuals should consult a CPA and/or a tax attorney.

  3. Not necessarily, right? Some buyers can be released from the debt – depends on the negotiations during the short sale process.

    What about the HAMP program coming into effect this spring- which is supposed to fully released from the debt?

    • There are a lot of folks who are trying to short sale non-principle residences so they are excluded from the Mortgage Forgiveness Act, ie. one friend who just asked my advice about a short sale after seeing me successfully complete the short sale of my primary residence earlier this year. Trouble for them is that their property is a condo that the wife bought before marriage and they’ve been renting out for the past couple years at a loss. The bank may approve their short sale, but they may also be on the hook for the 1099-C.

  4. I think it irresponsible of the writer to discuss possible tax implications from doing a short sale without speaking to fact that these implications can also occur in the foreclosure scenerios as well. Furthermore, it is absolutely careless to pretend to inform while leaving out critical reference information like the “The Mortgage Forgiveness Debt Relief Act of 2007”.

    Frankly, I am appalled that you even dared to waste mine and other reader’s time with this dribble not even worthy of a stall wall in the seediest of bathrooms.

  5. Well said Scott!! I was too a little irritated a post like this made it through, I just wasn’t so upfront about as you were LOL!!

    It should be deleted all together, probably the worst post I’ve seen in a long time.

  6. Sorry Charles…although your post was somewhat entertaining to read you are way above your pay grade on this one! I agree with all the others who said you shouldn’t be commenting on tax implications because well… shouldn’t!

    Here’s a quick 1 step process to figure out if you should be speaking about anything closely related to taxes:

    Step 1: Ask yourself “Am I a CPA or licensed tax professional?”

    If no – End conversation immediately and direct them to the closest CPA.

    If yes – Proceed to answer the question and then send them an invoice at a $200 hourly rate.

    See how easy that is.

  7. we have a fair number of short sale homes on the market presently. Is the new laws on short sales had any real effect on business in other markets or made the process any easier? I have not seen any dramatic change in our market.

  8. No – you do NOT get a pass on taxes you gain through a short sale (which are given to the tax payer in the form of a 1099); bankruptcy can lead to DISCHARGE of a debt to your mortgage company(ies), but taxes are NOT dischargeable (except in certain circumstances not relevant here).

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