How Do We Handle a 1099-C After a Bitter Divorce?

Question:

Dear Steve,

I know you’ve sort of covered this question before.

My ex-husband and I recently received a 1099 C after a short sale. The short sale occurred because he wouldn’t cooperate with selling the property. The property was our primary residence.

However, I now live in Virginia, and he lives in Maryland.

He quit his job in July 2019 to avoid garnishment for child support.

To my knowledge, he has not had a W2 since.

At the time of the separation, he refused to move out, so I did.

We had a separation agreement regarding the property which he failed to adhere to.

He’s not paying child support and currently owes $80.000.

How is the 1099C divided for tax purposes? Would the Mortgage. Would this qualify for the Mortgage Forgiveness Act that has been extended through 2020?

Tracie

Answer:

Dear Tracie,

You should look at this and this.

The answer is that you may not have to report the amount forgiven as income. This answer has examples and the information can also be found in IRS Publication 4681.

He sounds like a real prince.

If you were insolvent when your share of the debt was forgiven you might be able to use Form 982 to avoid any tax liability at all.

According to Intuit, “the Mortgage Debt Relief Act initially covered a three-year period between 2007 and 2010, but was extended five times, to 2012, 2013, 2014, 2016, 2017, 2019 and then to 2020. This can also apply to debt that is discharged in 2021 provided that there was a written agreement entered into in 2020.”

I would strongly suggest you consult with someone other than me that is a qualified tax professional for an expert answer. In these deep technical situations, I might know just enough to think I know the answer.

Sincerly,


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Damon Day - Pro Debt Coach

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