Re: 1099’s…Pros please chime it… - Posted by Peter_MD
Posted by Peter_MD on July 19, 2007 at 11:42:50:
The official answer is this:
The bank is required by Federal Tax Regulations to issue a Form 1099-MISC for the deficiency. This is true for any loan for a house, car, etc., if the amount is $600.00 or above.
This is required because the bank or lending institution takes a tax write-off for the deficiency against income it earned on other ordinary business operations.
There is no choice … the same as a settlement attorney or company issuing a Form 1098 for the sales revenue that is paid to the seller. Again, required by IRS Regulations.
Now, when the individual receives the Form 1099, it depends on their personal individual income tax situation whether that income is taxable. This varies from individual to individual. It still must be reported because the IRS has received a Federal Copy from the lending institution that there was a deficiency amount that was forgiven.
So, depending on the outcome of the debtor’s tax return, it may (or may not) be taxable income but it is still reportable income that must be reported on the Individual Income Tax Return Form 1040 for that particular reporting year.
We know because when the individuals get the Form 1099, they call us wanting to know “what up with that”, and we tell them the rest of the story … “it just depends”.
Hope this answers your specific question.
Best of luck in your future endeavors, remember you always make your money on the buy.