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Last year, I sold my house on a short sale. However, the mortgage debt on the home was discharged via chapter 7 bankruptcy 6.5 years ago. I do not believe it's taxable and have not received any tax documentation from lender. How do I answer the "Did you

I am 99% sure the difference between the amount I owed on the mortgage and the amount the house sold for is NOT taxable income for me, however, I am having trouble answering the "Did you sell or have your home foreclosed in 2016?" question truthfully, but without being asked for information I do not have (I have no tax documentation from the lender) or risking being taxed for something I don't owe.
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MichaelDC
New Member

Last year, I sold my house on a short sale. However, the mortgage debt on the home was discharged via chapter 7 bankruptcy 6.5 years ago. I do not believe it's taxable and have not received any tax documentation from lender. How do I answer the "Did you

The answer to the question is "Yes". However, if you sold your personal primary residence and you lived in and owned the home for at least two years in the five year period on the date of sale, you do not have to report the sale if your gains are less than the exclusion amounts of $250,000 if filing Single or $500,000 if filing Married Filing Jointly (and both lived in and owned the home for two years). 

If your debt was discharged in a Title 11 bankruptcy proceeding, such as a Chapter 7 or Chapter 13 case, you're not responsible for taxes on that debt. Either way you should receive a 1099-C (Cancellation of Debt). Check with your lender if you should be receiving one for 2016. The debt sometimes is not discharged until a later year. Either way, as you say, it will not be taxable.

However, if the debt, or part of it, was canceled before you filed bankruptcy (through debt settlement or negotiation, for example), the creditor must issue the 1099-C and that debt is not excluded, because it was not discharged in bankruptcy. As a result, even if you later file bankruptcy, you may owe tax on that debt cancellation income unless you were insolvent at the time you settled it.



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