If I paid off my mortgage via a settlement with the bank, will I have to pay taxes on the difference of what actually owed vs what we settled for? Who sends me the form?

chels111006 · ‎January 27, 2022

DMarkM1 · ‎January 27, 2022

Maybe. According to IRS FAQ on the topic, discharged debt is normally included in gross income, however one of the exceptions is "Principal Residence Indebtedness."

The mortgage company should send you a 1099-C. With that 1099-C and if you meet the requirement for "Principal Residence Indebtedness" you will file a form 982 with your return reducing the basis of your property by the amount on the 1099-C.

For more information see IRS Publication 525 the paragraph titled "Mortgage relief upon sale..." and review the hyperlink "Excluded Debt" found there as well.

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View solution in original post

Bsch4477 · ‎January 27, 2022

The bank will send you a 1099-C. See comments above.

DMarkM1 · ‎January 27, 2022

Maybe. According to IRS FAQ on the topic, discharged debt is normally included in gross income, however one of the exceptions is "Principal Residence Indebtedness."

The mortgage company should send you a 1099-C. With that 1099-C and if you meet the requirement for "Principal Residence Indebtedness" you will file a form 982 with your return reducing the basis of your property by the amount on the 1099-C.

For more information see IRS Publication 525 the paragraph titled "Mortgage relief upon sale..." and review the hyperlink "Excluded Debt" found there as well.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

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If I paid off my mortgage via a settlement with the bank, will I have to pay taxes on the difference of what actually owed vs what we settled for? Who sends me the form?