Do I need to file the 1099C that I received from my lender on a property that was discharged in a bankruptcy in 2009?

Asked over 1 year ago - Morristown, NJ

Property purchased 2/28/2003 - fell ill - bankruptcy discharged in '09. NJ was backlogged for foreclosures/deeds in lieu & new townhouse-related expenses started to pile up after the discharge, advised to rent property to pay expenses until the bank could catch up. Rented it from 2009-2011 - bank was bought & repurchased several times - contacted by new bank last year w/ $20K incentive to short sale - got advice from several attorneys - all said I shouldnt get 1099C - bank also assured me - now I have $141K 1099C anyway. I always reported the income & expenses while a rental but should have exceptions based on insolvency at time of discharge, bankruptcy & it was my personal residence for more than 2 yrs in the last 5 yrs - if I enter it it looks like I have a taxable gain of over $104K!

Additional information

The property earned rental income from 2007 to 2011 and that income was always claimed in tax filings, the bankruptcy proceedings - in fact the only income at the time of my bankruptcy filing was the rental income from the property which is documented in the bankruptcy. I was advised by my bankruptcy attorney to rent out the property after the discharge because I was now liable for the HOA fees, utilities, insurance and taxes until the foreclosure process was completed which could take years and I could personally rack up tens of thousands of dollars in liens and potential liability if I left the property vacant and unprotected. I'm in the process of doing my taxes and have been advised to include the incentive as a part of the sale price. Property upside down over $150K so no equity. I've filed my own taxes since 2003 using Turbo Tax - thanks for your feedback and any referrals you can offer.

Attorney answers (3)

  1. Ksenia V Proskurchenko

    Contributor Level 9

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    Answered . That's an interesting question. I don't think I can answer it based on the information you provided. Did you rent the property out during the bankruptcy? If so, did you report the income? What did you report the $20K incentive as on your taxes? Did the property have equity that you exempted at the time of the bankruptcy? Was there a clause in your note/mortgage stating that the rents belong to the bank? These are all variables that could make a difference in the outcome. You should consult a knowledgeable bankruptcy attorney first, who may need to collaborate with a tax attorney on your matter. Sorry I could not provide a quick answer.

    Ksenia V. Proskurchenko, Esq.
    President and Managing Attorney
    PROSKURCHENKO LAW GROUP, LLC
    570 North Broad Street, Suite 13
    Elizabeth, New Jersey 07208
    Main: (973) 321-3040
    Fax: (908) 933-0953
    www.prosklawgroup.com

    THIS ANSWER IS INTENDED FOR GENERAL INFORMATIONAL PURPOSES ONLY. IT SHALL NOT BE CONSTRUED AS LEGAL ADVICE NOR BE... more
  2. Eugene P. Castagliuolo

    Contributor Level 16

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    Answered . You have at least one big problem (and possibly several) all stemming from the fact that you surrendered your home in bankruptcy, and then went on to use that same property as an income-producing property (with a $20,000 bonus to boot). You receiving a 1099-C means that the IRS already knows. I strongly suggest that you find a great tax attorney yesterday. Good luck!

    As of the time I provided my answer to your question(s) today, I am NOT your lawyer and you are NOT my client.... more
  3. Diane L Gruber

    Pro

    Contributor Level 18

    Answered . Take the 1099C to your tax preparer ASAP.

    Be sure to designate "best answer." If you live in Oregon, you may call me for more detailed advice, 503-650-9662.... more

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