Hi Realtor,

You will get a 1099C for a Short sale. If you end up in foreclosure or deed in lieu you will get a 1099A. The lender has to report taxes and they were owed the full amount of the note. therefore, since you are not paying them their full balance they have to show where the money went or didn't go.
Contact your favorite tax professional and ask them how they will treat the 1099a or 1099c. Then you will know the strategy. if the home is primary it will be treated one way if an investment property another way. Be careful that you work with a good tax person because some are not educated in short sales and think a foreclosure is better tax wise. In any case, good luck with your short sale and call me 30 days after and i will help you with credit repair! Good luck

This site will and should help you with the questions you may have. Also please get legal advise from a qualifed legal attorney if needed, but IRS pretty much spells it out for you.

Realtors can help a client generate questions and concerns so that it can best be determined what expertise they need in order to get answers.

When a lender provides a lender approval letter it often spells out the terms of their acceptance of a short sale. That may have some questions best answered by a real estate attorney. Understanding if it's a recourse or non recourse loan, and the potential liablility might me important to them. In many cases, while a 1099 could be generated, in some cases they never receive one. If they do receive one they should always include it as part of their tax consideration for that year. HOWEVER, that doesn't always mean that taxes will be owed, or to what extent taxes are owed. Those questions are best answered by a tax accountant.

If the client is insolvent (such that all their assets show less than zero) then I understand that no taxes are owed. If the short sale was for a primary residence and the amount was under the $250,000 tax exclusion for an individual ($500,000 for a married couple) they may not owe any taxes. Every situation is so specific to the individual, it would be important for them to work with a very knowledgable CPA. I rely heavily on Ed Cook at (916) 705-4958 to explain things like this to my clients. He is very knowledgable, afffordable, and very reassuring.

If you are an agent with a short sale listing for a client, you really should direct him/her to seek advice from a qualified tax professional.

The short answer is yes, your seller will receive a 1099 from the lender for the difference between the net proceeds of the sale, and the amount owed. If there are two separate lenders, your client will receive 2 separate 1099's. There is both state and federal legislation regarding how debt forgiveness is handled.

Again though - be careful about giving your client any tax advice.