form 1098

Hi lpn,

Was the deficient balance resulting from the short sale forgiven by the lender? If yes, then the IRS will consider this as your income. Thus, you will be charged taxes on that amount. However, you should check out if the Mortgage Debt Relief Act is applicable in your state. Depending upon that you may not have to pay the taxes.

Yes you are going to want to bring this with you when you get your taxes done. Was this your primary residence?

I also got a 1098 with a lot of interest reported but I made very few mortgage payments in 2009 leading up to a short sale. The first posters question was not answered, is this full amount on the 1098 deductible?

I do not think the full amount will be deductible. However, you should take the help of tax adviser in this regard and get his suggestions.

I also received a 1098 for interest that I did not pay. My tax lady put it all down as a deduction, resulting in a very nice tax return. Something doesn't seem right though. Hopefully some one has a helpful answer.

I rec. a 1098 of $11,000.00 and didnt know if I could claim it or not. I did get a 1099-C and put that in turbo tax, but under the law I dont have to pay taxes on the foregiven amount. I reaserched and found that 90% of the answers were "yes...claim it if you got a 1098, someone paid the itnerest on your behalf." So I did....I dont feel very good about it.

Hi Jake,

Have you received a 1098 form or a 1099 form? If you received a 1099c form, then it means that your debts have been forgiven. If it is your primary property which went into short sale, then depending upon the Mortgage Debt Relief Act, you won't be liable for paying off the taxes on the forgiven debt.

Thanks

I received both a 1099-C AND a 1098. When I was going through the short sale the short sale agent said that the bank accepted the offer amount and that I would not be responsible for the difference because of the MRA of 2007. I took my taxes to a small firm and they said they would charge me upwards of $200.00 to do my taxes. I am already short on money so I decided to do it myself with Turbo Tax and now I feel that I made a mistake as I did claim the taxes!? The 1098 list a little over $11,000.00 in interest paid. I cant remember, but I dont think I paid any payments in 2009 or very few if I even did. Here is the twist, the co-borrower on the loan (my ex fiance) filed a chapter 7 BR while the home was in a short sale. So when I call the bank they wont give me any details accept that the accounts shows as a chapter 7 BR.
Should I call the IRS??? I am scared to death at this point. Will the IRS let me know if I made a mistake so I can correct it? Is there anyone that I should contact and if so what questions to I ask??

Thank you for the help, I appreciate it very much!
Jake

Hi Jake!

Welcome to forums!

You can call the IRS. It will be better if you could contact a CPA in this matter and discuss your situation with him. He will check your tax documents and let you know what you need to do.

Feel free to ask if you've further queries.

Sussane

Thank you. I will see if I can find one that would be willing to answer my question. I received the refund this morning. I wont be touching the money until I find out what the details are. Since I see this question asked a lot, I will be sure to come back and tell everyone what they said because I know a lot of people are going through this right now.

Jake

Well, here is how it has gone so far.

I spent an hour and a half on the phone with the IRS. I was bounced back and forth between the Tax Law Department and the Complex Tax Law Department.

The 1099-C: Cancelled Debt - The agent told me that this was simply tos how that my debt had been cancelled as I already knew. He also told me that this would NOT prevent me from claiming the interest shown on the 1098 that I received. He told me that I needed to be transferred to the Tax Law department and answer a series of questions and I would get my answer there.

To the Tax Law Dept. I went.

I spent the remainder of the time on the phone explaining to the second agent that I stopped making my payments in October of 2008 and that the home sold in april of 2010 after negotiating for quite some time with the bank. He asked me a very long list of questions, putting me on hold 5-6 times. I answered all of the questions honestly and to the best of my knowledge and after being on hold for the last time the agent came back on and told me based on my answers and the fact that I received a 1098 (not 1098-S, E, ect.) that I could claim the interest shown paid. I asked them to verify their answer and they did.

Now the call with the bank.

I called the bank that I did the short sale with and the only thing that they told me is that they sent a 1098 to the IRS and to me for my tax purposes. I told them that I had done a short sale and didnt know why I received a 1098 and wanted to know if I could claim the interest. The agent simply spit out a canned response "the 1098 is for your tax preparation purposes, you can claim qualified interest but you need to consult your tax professional." I knew I wasnt going to go anywhere from there, so I simply said thank you and hung up.

Now I dont know where to go. The IRS agent said that it seemed that the taxes were either pre-paid or taken out of another account and paid on my behalf. I do know that my loan (for the first 5 years) was mainly interest payments. I made payments on the home for almost 3 years, so the only thing that I can think of is that they took the money from prepaid taxes or something and paid it on my behalf.

The short sale agent didnt know anything and told me that they were not certified to answer this question. They made no note of who or what paid the taxes stated on the 1098.

So basically, I feel like crap covered in sugar at this point. Part of me wants to just take what they said and keep the money and get some bad debt paid off and the other part of me wants to file an amended return and delete the 1098.

So, I guess I will seek a tax professional's advise and shell out more money that I cant afford probably just to be told that I cant claim it, owe the IRS the money back and now owe fees to both the IRS and the tax advisor.

This sucks. I spent all day talking and asking questions, explaining my situation and still dont know if I can claim the interest.

Do I sit on the money for a few months and see if anything happens? Will it happen this year or next?

Help if you can

Jake

Hi Jake,

As far as I know, after a short sale, the lender will send you 1099 A form which deals with abandonment of the property. If you receive a 1099c form, it means that the lender has forgiven the deficient balance and you will be liable for paying off the taxes for the forgiven deficient balance as it will be considered as your income. It is always better to contact a CPA and take his opinion in this matter.

Thanks,

Jerry

Thank you for your response, however that is incorrect. The 1099-C is a notice of cancellation of debt and under the Relief Act of 2007 and because it was in the short sale contract and the bank agreed, I do not have to pay the taxes on the foregiven amount. When I called the bank, they verified this.

Thats as far as I have gotten. I will be contacting a CPA as soon as I can to find out what I should do.

Jake

PS - Its only incorrect in MY case, it could be different on yours depending on the contract and your state laws.

Jake have you found the answer yet? I also got 1098 after short sale for amount that doesn't make sense. But still haven't decided what to do. I tried to get appt with couple of qualified CPAs but they seem very busy these days. Maybe I will need to file extension