Can I be taxed on income on a 1099-C for a Deficiency from a Foreclosure if the property was included in my bankruptcy?

Asked over 1 year ago - Leesburg, FL

I was sued for foreclosure and filed bankruptcy. My bankruptcy is discharged and the property was foreclosed and sold. I have now received a 1099-C. I live in Florida and it was vacant land. Since the debt was in the bankruptcy, am I liable for the taxes now? Principal balance was $59,000 and fair market value was $39,000 when sold. If liable for taxes, do I only pay tax would it just be tax on the difference of $20,000.

Attorney answers (5)

  1. Margery Ellen Golant

    Pro

    Contributor Level 20

    9

    Lawyers agree

    Answered . If the mortgage debt was discharged in bankruptcy, there was no longer anything for the creditor to forgive. However, many of the mortgage companies are doing this, to make it look like they are complying with obligations they have under the National Mortgage Settlement, and of course, forgiving a debt that was already discharged in bankruptcy is completely bogus on their part.

    Assuming the facts you include in your question can be properly documented, you should consult a local CPA to file your tax return and to address this issue with the IRS. Assuming it can be made clear that the debt was discharged in bankruptcy and not by means of forgiveness, it should be manageable, but make sure to take the initiative, do not ignore this, and get a qualfied CPA to assist you.

    Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-... more
  2. Monique Eileen L'Italien

    Contributor Level 4

    6

    Lawyers agree

    Answered . Generally speaking debts discharged through bankruptcy are not considered taxable income. You do not indicate whether you filed your bankruptcy pro se or with an attorney. Either way, you should consult with a bankruptcy attorney in your area to assist you.

  3. Sheryl Ann Edwards

    Pro

    Contributor Level 12

    6

    Lawyers agree

    Answered . The amount shown on your 1099-C should be addressed on your tax return using IRS Form 982. Using that form, you will inform the IRS that the amount shown on the 1099-C is not taxable to you as income. This form is also used is you are informing the IRS that forgiven debt is not taxable under the insolvency exemption or the primary residence exemption (Mortgage Forgiveness Debt Relief Act). For more information, visit my website addressing this topic.

    http://www.foreclosurelawyersarasotafl.com/Fore...

    This information is being provided for informational purposes only and is not to be taken as legal advice or to... more
  4. Michael Avanesian

    Pro

    Contributor Level 16

    4

    Lawyers agree

    Answered . The short answer is you won't have to pay this. Unfortunatley, as the other attorneys mentioned, there are some hoops you have to jump through.

    The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may... more
  5. Matthew Scott Berkus

    Contributor Level 20

    1

    Lawyer agrees

    Answered . Can a bank issue a 1099-C after bankruptcy....
    1. Is it legal, yes.
    2. Is it an error, no.
    3. is it required, no.

    If anyone actually reads the instructions and IRS regulations regarding 1099-C's, you will learn that a lender is not "required" to issue a 1099-C on debt discharged in bankruptcy, but it is not forbidden from doing so. As such, it is NOT an error.

    A 1099-C is merely a reporting document. All it does is tell the IRS that a potentially taxable event occured. If you recieve a 1099-C, and assuming the debt was discharged in bankruptcy, the debter need only file IRS Form 982, check box 1(a), write the amount in box 2, and bam, no tax liability on discharged debt.

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