The lenders are indeen issuing 1099's....I play it safe and advise my clients to seek legal and/or tax advice about their situation.

How about the property (SFR), owner occupied with renters in the back? If sellers were to be forgiven, the property has to be owner occupied (not investment). We are aware that lots of our short sale listings have tenants in the back and we are disclosing it to the bank. Are we considering this type of property "owner occupied/investment, therefore they can be issued 1099?

Charita King
562-276-8681

Thank you ALL so much with this information! I now can advise my clients to seek advice from their accountant AND lawyer, while handing them some info from the source!

If you request that the lender not isuue a 1099 upon the close of the transaction and make it a line item addendum to the original purchase agreement...they will not. There are distinct differences between an agreed short sale and a foreclosure sale. In a foreclosure sale, the foreclosed borrower can't receive the 1099 because they surrendered the property! Under a short sale, the lender agrees to the lower amount to merely release the trust deed against the property.

Where folks get stuck is when the borrower decides to dump a property, perhaps one they don't honestly live in but claim as owner occupied. The value is low and the rents just don't cover the mortgage. They get an approved short sale from the lender but for some strange reason the lender figures that the borrower is less than honest and just dumping an asset. That's where the 1099 should show up. The "new" Housing Bill does not have any provisions that allow for relief of "Investment Debt" as would a second home be classified. Remember...the key words are owner-occupied!

I recently spoke with a lender who said they are issuing 1099s. Here is a form 982 and instructions, which gives some good info. http://www.irs.gov/pub/irs-pdf/f982.pdf

Ute.....

it is my understanding the lenders are still issuing 1099's as they do not know to does or does not qualify. Properties that are not owner occupied do not qualify under the guidelines. I have been referring my clients to talk with their CPA's for tax advise on this.

hi Ute, currently, all of the lenders I am working with in short sales are still sending sellers 1099's.
hope this helps!!
leanne smith

Hi Chris. Thank you so much for the info. I am glad I am not the only one who thinks that the lenders are still going to issue the 1099s. I started wondering as I have heard conflicting reports and it just did not make sense that the lenders would not even issue the 1099s anymore. I'll take a look at IRS form 982 to see what it says. Thanks again for sharing the info.

Hi Ute,
The IRS form 982 (revised in February of 2008) entitled "Reduction of Tax Attributes Due to Discharge of Indebtedness" deals with the handling of a 1099 for certain qualified properties. It is my understanding that the lender will issue a 1099 and it is up to the seller to file the appropriate form (if it applies to their situation) in order to receive the benefits of the Mortgage Forgiveness Debt Relief Act. I recently searched through the IRS website to find information on this topic for a good friend and client, because I kept hearing conflicting versions of this process. I found several articles that address this topic and offer explanation on filling out form 982. However, it is still not perfectly clear. I was going to go in and talk with someone at the local IRS office after tax season. I would be happy to email you a link to the forms if you would like. I would love to hear what others have to say on this topic.