Do You Owe The IRS Money?
Forgiven debt is considered income to the IRS, so if you had a short sale or got credit card debts cancelled, you may find that you suddenly owe taxes on "income" from a debt that was discharged.
If you sold a house through a short sale, and the home was not your primary residence, you may find yourself owing taxes on tens or hundreds of thousands of dollars in forgiven (cancelled) debt. The Internal Revenue Service considers this to be income because you essentially borrowed money and did not have to pay it back.
A Tax Advisor May Need To Help You.
In the years 2012 and 2013, millions of 1099-C forms for "Cancellation of Debt" were mailed out to people who may have had debts discharged through bankruptcy or charge offs. Whether you owe taxes on this form depends on how the money was borrowed, and under what circumstances the debt has been discharged.
In general, debt on mortgages that were your primary residence, and whose debt was discharged between 2007 and 2013, are not taxable even though you should still be showing the 1099-c form on your income tax return. Otherwise the IRS, who has also gotten a copy of the form, may believe that your are shielding this information from them. If you were insolvent when you got credit card debt or loans discharged, you are also not necessarily eligible to pay taxes on the money. However, if you did a short sale on a second home or other property under your name, and debt was not discharged under a bankruptcy, then you may end up adding thousands of dollars to the taxes you owe because of the high amount of the money shown on the 1099C form.