I have some great news to share with my 2017 (and some 2018) short sellers! Due to a retroactive extension to an old tax act, you may be exempt from having to pay taxes on a 1099C from your short sale!
A successful short sale generally results in the borrower receiving forgiveness of mortgage debt, generating the lender to send a 1099C to the borrower which in turn creates taxable income.
Through 2016, there were special tax laws in place that allowed most taxpayers to exclude this 1099C “income” from their taxable income and save them lots of money.
This Act – The Mortgage Debt Relief Act which had previously expired in 2016, has now been extended retroactively to 2017!
This tax law applies to those who received debt forgiveness or reached a written agreement with their lender or servicer to receive it in 2017.
According to Phil Querin (Querin Law LLC), for purposes of securing debt relief under ORS §108, the home must have met the following requirements:
- It must have been the debtor’s primary residence;
- It must have been occupied two of the past five years (e.g. prior to the event, such as a short sale);
- The borrowed funds must have been used to buy, build, or substantially improve the home; and
- The maximum amount of principal eligible for exclusion is $2 million if married, filing jointly, and $1 million, if married filing separately.
For guidance on this tax law refer to your tax professional, and I also found this turbo tax guide to provide more simple guidance on this issue.
Last Updated on March 23, 2018 by Minna Reid