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We began our tax return

February 10th, 2014 at 07:46 pm

As many of you may remember, we sold a house as a short sale in April 2013.

The house we sold was not our principal residence, we did not declare bankruptcy in 2013, and we were not insolvent at the time of the sale...therefore, we should be required to pay tax on the amount of debt cancelled.

We did not receive a 1099-C from our mortgage holder. As I understand it, they were required to mail the 1099 on or before Jan. 31. We waited 7 "mail days" (days we received mail) for the 1099 before we bought Turbo Tax. The reason that's important is that if we had received the 1099-C, we probably would have hired a CPA to complete our return, and not bought TT.

I bought TT yesterday. We don't plan to inform the IRS about our forgiven debt.

I have no clue why our mortgage holder wouldn't report our forgiven debt to the IRS. It seems to me that if they wanted to declare the loss for their own taxes, they would have had to issue is a 1099, right? But, we didn't get a 1099, and I think we waited long enough, didn't we? We waited until February 9.

I seriously do not want to volunteer to the IRS that we owe them about 20K in taxes. But, if the 1099 had shown up, we would have figured it out (as I've mentioned before regarding this issue, most of it would have been covered by the adoption credit from our 2012 adoption of a special needs child).

So, we're going to complete our taxes as is, without declaring the cancelled debt.

Any thoughts on this would be appreciated.

Thanks.

Posted in Uncategorized | 8 Comments »

8 Responses to “We began our tax return”

  1. just a thought Says:
    February 10th, 2014 at 08:12 pm 1392063130
    1392063130

    I think you should declare it. I think otherwise it has the potential to come back to bite you later. Also, it's the right thing to do. My guess is that the 1099 will come in the mail this week.

  2. MonkeyMama Says:
    February 10th, 2014 at 08:35 pm 1392064516
    1392064516

    I think the 1099 could still come.

    I personally like being able to sleep at night. & that means not messing with the IRS, and it means paying every penny of tax I know that I owe. Penalties and interest could make the situation far worse in the long run.

    Regardless, the last thing I would do if I were to make a decision like that, is to advertise it publicly.

  3. MonkeyMama Says:
    February 10th, 2014 at 09:00 pm 1392066000
    1392066000

    P.S. I would probably hire a tax preparer, who was knowledgeable about foreclosure and debt forgiveness, and just take it from there. Just because you hire someone to do your tax return does not mean that you have to file that tax return. I'd think I would want to know the actual tax and ramifications.

    Ironically, I have only dealt with one foreclosure and it was in Nevada. HA! (Ironic because California is like foreclosure central). SO... I am not well versed and nothing I can really offer. Plus, I don't know anything about your state (may owe state taxes too?). But I can't help but wonder if it was your primary residence for 2 of the past 5 years??? (Though I think we had this discussion already?). Regardless, there are some other rules and who knows...

    I understand though. It's not fair. IRS has let many many people walk away from their homes with no tax consequences. You try to do the right thing, and you might owe $20k. I get that. But, two wrongs don't make a right. I'd hate for you to be hit with worse problems down the road.

  4. creditcardfree Says:
    February 10th, 2014 at 09:01 pm 1392066078
    1392066078

    I agree with MM, that the 1099 could still arrive. I would NOT file your taxes for awhile yet. If you do and it arrives, you will need to amend. I think in this case it is worth waiting until at least the beginning of April. This is a BIG thing not to declare vs something like $100 in interest from your bank...if that makes sense.

    Do you have access to your former account with the lender online? I would look to see if there is information about that document there, or any information about mailing. If it were me personally, I'd even call the lender about the form. I would be planning to declare it so it wouldn't bother me to check with them directly.

  5. Joan.of.the.Arch Says:
    February 10th, 2014 at 09:54 pm 1392069246
    1392069246

    OMG, your situation might keep ME awake at night. Please take care so that _I_ can sleep. Wink

  6. Carol Says:
    February 10th, 2014 at 09:59 pm 1392069565
    1392069565

    I am voting with Monkey Mama and the others on this, especially because I have read--on the forums?--that for some reason--new laws??-- some of the 1099s are late this year. Good luck and take care!

  7. creditcardfree Says:
    February 10th, 2014 at 11:02 pm 1392073350
    1392073350

    Here's another way to look at this Bob. The tax you pay would easily have been the amount you would have paid over the years if you couldn't get a short sale and were paying on that mortgage.

    And I completely agree that it isn't fair that others get to walk away without consequences. It actually is pretty upsetting to me, because now ALL tax payers will effectively be paying more to the government to cover these bailouts for years to come.

  8. snafu Says:
    February 10th, 2014 at 11:08 pm 1392073731
    1392073731

    My 1st reaction was wait ...it' early days in the tax filing season. If you decide to go ahead, you can file an amended statement when you receive the1099. If you're a gambler, you can wait until the IRS informs you of penalty and sums owed, or not.

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