Short Sale 1099's

The discussion keeps coming up about 1099's involved in short sales. It would seem a seller has lost the same amount forgiven in the loss of value of the property. It should be a wash, in my previous business experience. Anybody have clarification on this?

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  • The difference is that the owner did not put up his/her own money for the total purchase.  The funds were borrowed and paid on the buyer's behalf via a mortgage.  Since the bank has forgiven part of the debt owed, it is a taxable event. IRS regulations require that a taxpayer report any forgiven debt on the 1040 as taxable income.  There has been a lot of speculation whether Congress will enact legislation to deal with this issue, but as far as I know, nothing has been done.


    Hope this helps.

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