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What to expect for taxes from 2013 short sale

Discussion in 'Short Sale Outpost' started by aname, Jan 14, 2014.

  1. aname

    aname LoanSafe Member

    Hello, we went through a successful short sale in 2013 with Wells Fargo, an FHA loan, and they have waived the right to go after the deficiency.

    I am trying to understand what to expect for taxes. Will we or won't we be getting a 1099C? Is it good or bad to get one? If we have been completely released from the loan, can mortgage insurance come after us? I am finding conflicting information everywhere. (I do know about the mortgage debt relief act, I'm not worried about paying taxes I'm more worried about what it means to get a 1099C and if I need to worry about mortgage insurance coming after us)

    I of course will discuss this with the accountant but want to hear what this forum knows before I talk to them.
  2. TomEason

    TomEason LoanSafe Guide Staff Member

    aname

    Thanks for your post.

    I'm glad to know you'll be conferring with your tax person. He/she will know the answers to your questions. IMO the receipt of a 1099-C isn't particularly favorable.

    Unless you executed an agreement with the mortgage insurer, you owe the insurer nothing. I wouldn't be worried.
  3. aname

    aname LoanSafe Member

    Thank you for the response. Would you be able to explain why you feel that receiving a 1099C might be unfavorable? So far we have not received one. From what I've read, getting one might indicate that the bank/lender may still have you on the hook for the remaining amount, correct?
  4. buchanovich

    buchanovich LoanSafe Member

    Getting one says the debt is forgiven. However that is not an absolute in a court when you are being sued for deficiency. It should be as it says in black and white "cancelled" but you need arguments, all depending on your state's laws. Not receiving a 1099 means the IRS hasn't received one and you are not notified of forgiven debt. However, if you do get a deficiency cancelled/forgiven and the home was a primary home (2 years out of the past 5 rule) and the money was used for purchase or improvement of said home, you can get the tax waived. Even though the act has expired, a 2013 closing is within the active period and you need to fill out the proper forms, see IRS pub 4681 and form 982 for the details.

    All that said, if you are in a non-recourse state with the right rules, then it is a non-issue.
  5. aname

    aname LoanSafe Member

    Hello again.

    We finally received something in the mail, however it is not a 1099. We received a 1098 mortgage interest statement that shows what interest was paid in 2013. There is also a box that says "principal reduction" that shows:

    $200,000 Beginning Balance
    $200,000 Principal Applied
    $0 Ending Balance

    ...


    ETA

    We are NOT in a non-recourse state. However we did a document from Wells saying they waived their right to come after the deficiency.

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