The debt that was discharged in your bankruptcy is not taxable COD income. The IRS created Form 982 for you to handle this situation. Under code section 108 debt that is discharged in a Title 11 action is not taxable for COD income. You will still most likely receive a 1099, but the income it is reporting will be excluded. In 2013 the Mortgage Debt Forgiveness Act of 2007 is set to expire and the debt canceled on you principal residence will no longer have the $2 million exclusion currently available under the Act. This does not affect the bankruptcy provision that is covered in Section 108 of the IRC.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.
I am not a tax lawyer but my understanding is that since you have no personal liability due to the bankruptcy you would never have to pay taxes on any debt cancellation anyway. This is just another reason in addition to being able in your case to file Form 982 and checking the box that says you did a case under Title 11 (which includes Chapters 7, 13 and 11). You may have gotten three different answers and they are probably all correct. The bottom line is that you should not have to worry about cancellation of debt tax liability. Now the question I ask all the clients who are doing a short sale: Why? What if the buyer finds something wrong with the house later and sues you? You can forget about bk to save you for the next 4 years when you become eligible to get a discharge in a C13 case and then only by paying in a plan. C7 is not available to you for 8 years. The real estate agent is getting a commission. What are you getting? Will a short sale after a bankruptcy case and not having made mortgage payments for a long time make any different in your credit record. I've been told that there is no difference between freclosure or short sale in your credit report. Both result in a loss to the lender. You might get to stay at the house without paying a little longer... maybe or maybe not since the sale may be quick and the buyer wouod want to move in. After a foreclosure you might get "cash for keys" but in a short sale you give keys but get no cash. The real estate agents are going to hate me for this! (I do have a brokers license and sold houses when young so I know the real estate business is a lot tougher that most people think.)