short sale bankruptcy 1099 C

[Guyl]

http://www.smartmoney.com/personal-f...t-forgiveness/

[Guyl]

also seems favorable here too?

http://www.irs.gov/irs/article/0,,id=179073,00.html

If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.

[Help!]

I called the IRS about our situation since we also received a 1099 from our mortgage lender and I was told that if the debt was included in BK (regardless of the timing of the sale/foreclosure of the home) the 1099 should not have been sent. I was told the shortage should not be included as income and to include IRS form 982 with my tax return. You may want to call them also, explain your situation and get some peace of mind.

Here's the IRS publication that explains the exemption for debt discharged in BK:

http://www.irs.gov/pub/irs-pdf/p4681.pdf