Milpitas North San Jose Berryessa Real Estate News

A common question on the hotline concerns weather the seller will get a 1099 for the canceled debt.  Some sellers have misunderstood the new cancelation of debt income laws and believe they will not get a 1099 or will get a 1099 only for those amounts not covered by the debt relief laws.  This is incorrect.  The seller will almost always receive a 1099 when there is canceled debt.  While the canceled debt may not be taxable, it still needs to be reported.  Generally, the seller will not receive a 1099 only when the lender is not canceling the debt.  For example, a second trust deed holder may agree to a short sale but will not agree to waive its right to pursue a deficiency judgment against a seller and therefore will not issue a 1099 because no debt has been canceled.

A solid understanding of the tax and deficiency issues in short sales are important for you  to understand.  However, a warning that when it comes to the seller's specific situation - for example, if a seller asks a real estate agent to figure out exactly how much tax he or she will owe - the real estate agent should advise him or her to seek advice from an appropriate professional.  Realtors should not provide legal or tax advice.