Articles Posted in Tax Debt

If you filed had your home foreclosed or surrendered it in bankruptcy last year you will be receiving a 1099 from your mortgage company.  Do not ignore this.   Deal with it now, otherwise it will cause you problems in the future.

Here is what you need to do. IRS-Form-1099-MiscThere is a special tax relief available called the “Mortgage Forgiveness Relief Act of 2007“.   This will forgive the debt and you will not owe any tax on the amount listed on the 1099 form.  Make sure your tax preparer knows you suffered a foreclosure or filed bankruptcy.   If you have already filed your tax return then you will need to file an amended return.

If you are a self-employed worker you will receive a 1099 for your wages instead of a W-2 form. But there is another type of 1099 that you may receive from one of your creditors. This is form 1099C.  A 1099C form is used when all or a portion of a debt is canceled or forgiven by the creditor. If the amount exceeds $600.00 a creditor must report this debt forgiveness to the IRS. The IRS counts the forgiven or cancelled debt as income that must be reported on your tax return.

You should receive a copy of the 1099C form in the mail from your creditor(s) when they file the form with the IRS.  You may not have gotten a copy. If not, the IRS will send you a notice stating you failed to include income on your tax return as a result of a creditor filing the 1099C form. Now you owe taxes, penalties and interest on the amount.

But wait, there are reasons why you may not have to pay taxes on this canceled debt. Here are some of the exceptions listed in IRS Publication 4681 that would relive you of the taxes, penalties and interest.