SHORT SELLERS CLAIM 1099 TAX RELIEF

Homeowners who did Mortgage Work Outs or Short Sales, whose mortgage debt was partially or entirely forgiven between 2007-2012 are able to claim special tax relief by filling out the revised Form 982 and attach it to the coinciding federal income tax return, according to the Internal Revenue Service. Legislation enacted in October 2008 extended the Mortgage Forgiveness Debt Relief Act of 2007 through 2012. Thus this relief now applies to debt forgiven in calendar years 2007 through 2012. Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less. The limit is $1 million for a married person filing a separate return. 

The enactment of this law applies to debt forgiven in 2007, 2008, 2009, 2010, 2011 through 2012. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b). The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing. 

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure. The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home ( Box 7).

The law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”