I recieved a 1099 misc from a mortgage company that bought my house that was in foreclosure. It was a divorce situation; my name was not on the mortgage but was on the deed. I didn't profit from the sale I actually took a huge loss. Am I able to claim insolvency on a 1099misc, so I don't have to pay taxes on this?
Yes, in theory, but you may need to download an Insolvency Worksheet to back your claim.
For Form 892, "Check the box on line 1b if the discharge of indebtedness occurred while you were insolvent. You were insolvent to the extent that your liabilities exceeded the fair market value (FMV) of your assets immediately before the discharge. For details and a worksheet to help calculate insolvency, see Pub. 4681."
Please see this LINK for more information regarding Form 892 and this LINK for canceled debt.
A 1099-MISC? That seems wrong.
Edit: You may want to contact the mortgage company for some clarification for why they sent a 1099-MISC, rather than a 1099-A or a 1099-C.
I thought that 1099 misc was wrong as well. However, it was not the company that held the mortgage that bought it. A different mortgage company purchased the existing mortgage from the bank that held the mortgage and gave me $5000 to sign the papers. It is kind of confusing, I hope this makes sense. Thanks for your help.
It's difficult to know how to proceed because it was not the company that held the mortgage that bought it. A different mortgage company purchased the existing mortgage from the bank that held it and gave me $5000 to sign the papers. So, they didn't actually forgive my debt, they got me out of it, but I was insolvent at the time. It is kind of confusing, I hope this makes sense. Thanks for your help.
@klooskate wrote:gave me $5000 to sign the papers. So, they didn't actually forgive my debt, they got me out of it, but I was insolvent at the time. It is kind of confusing, I hope this makes sense. Thanks for your help.
They did not cancel your debt, they paid you $5000 for something, so that is taxable income (so the 1099-MISC is correct).
As for your debt, I don't know the specifics of that, so I can't really comment about that.