Examples Of Short Debt Forgiveness
Short Sale Debt Forgiveness and 1099-C tax liability explained
When someone loans you money and then tells you that you do not have to pay it back, the IRS considers that “windfall income” that you have earned. Here is an example:
A person buys a $300,000 home with no money down by taking out a $300,000 mortgage. Let us say the buyer cannot make the mortgage payments and the bank forecloses on the loan, accepts a short sale, takes the home back via a deed in lieu of foreclosure and waives the deficiency balance.
After one of these procedures, the lender sells the home for or NETS $200,000 after the short sale. This leaves an unpaid mortgage balance, or deficiency balance, of $100,000. The bank or lender will “write off” this amount as a business
When someone loans you money and then tells you that you do not have to pay it back, the IRS considers that “windfall income” that you have earned. Here is an example:
A person buys a $300,000 home with no money down by taking out a $300,000 mortgage. Let us say the buyer cannot make the mortgage payments and the bank forecloses on the loan, accepts a short sale, takes the home back via a deed in lieu of foreclosure and waives the deficiency balance.
After one of these procedures, the lender sells the home for or NETS $200,000 after the short sale. This leaves an unpaid mortgage balance, or deficiency balance, of $100,000. The bank or lender will “write off” this amount as a business