1099C tax requirement in MA

[k_sanders222]

I foreclosed on my main home in 2012 and filed bankruptcy. I just received a 1099C dated 3/13/2019 and live in MA. Why did I receive this now this many years later? Why am I obligated to pay 5% Mass Tax on this now? Is there anyway to get around this? 

[LinaJ2020]

As long as the debt has not been paid or canceled, there’s no statute of limitations on when a lender has to submit a 1099-C. The process of bankruptcy could be complicated to explain why it takes longer.  To obtain the details, I would suggest you contact your bank or the issuer of the Form 1099-C.  

Per its state tax law, Massachusetts does not honor the exclusion for mortgage forgiveness on the principal residence.  You would have to pay the 5.1% tax on the amount.  There is no way to avoid it.  See the information below:

Generally debt forgiveness for a borrower who is personally liable on a loan is taxable income unless one of the following exceptions applies per Federal tax law:

1. Occurs under Title 11 bankruptcy
2. Occurs when the taxpayer is insolvent (Debts greater than Assets)
3. Is qualified farm indebtedness
4. Is qualified real property business indebtedness (other than C-corporations)
5. Is qualified principal residence acquisition debt (up to $2M for MFJ) – expired December 31, 2013

Massachusetts, however, did not adopt the exclusion for mortgage forgiveness on principal residence.  Thus, for home mortgage cancellation of debt only one of the first 4 exceptions listed above will prevent the debt forgiveness from being subject to MA income tax.

Also, click to read MA instrucitons, page 5 under Qualified Principal Residence Indebtedness Exclusion.  See the image below: