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Real Estate Short Sale Forgiveness of Debt

August 10, 2011


From:  Phil
Date:  12 Feb 2011
Subject:  did a short sale and got a 1099-s form

I did a short sale on my residence last year. I bought it for $380,000 and sold it for $230,000. The bank said they would forgive my debt, but I received a 1099-S form for $150,000. Do I have to report this?

Answer

Date:  9 Mar 2011

Hello Phil,

The figures donít seem to jive.

Form 1099-S is the form for reporting the gross proceeds from the sale of real estate. The form should show the $230,000 sales price of the home. You should report the sale of your residence on Schedule D, but limit the loss to zero as a personal use asset.

If you received a Form 1099-C for cancellation of indebtedness that qualifies for the exclusion for cancellation of qualified indebtedness for a principal residence, it is reported using Form 982. Check the box at Part I, item e and indicate the amount at Part I, item 2. See my article on short sales and foreclosures at www.realestateinvestingtax.com/shortsale.shtml.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

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