1099-C from Mortgage Refinance - Box 5 Not Checked

[jmcc19]

Hi, I'm trying to enter a 1099-C that I received from a mortgage refinance of my primary home in 2022.  When I try to enter this in Turbo Tax under Miscellaneous Income --> Cancellation of Debt (Form 1099-C), it tells me that I can't enter it there because Box 5 is not checked.  Box 5 is "Debtor was personally liable for repayment of the debt" and the form I received from the mortgage company does not have it checked.  So TT tells me this is a non-recourse loan (which I read may be normal for a mortgage), and then says "Since you are not personally liable for this debt, you don't need to report this here.  Instead, report it as Sale of Home in Less Common Income section".

Is this really where I need to enter this 1099-C?  When I go to Less Common Income --> Sale of a Home, the questions very much seem to be related to actually selling a home and any potential capital gains.

If anyone has any advice for this specific situation I would be happy to hear it.

Thanks,

[DianeW777]

Please clarify:

1. Was the property abandoned?
2. Did the bank foreclose?

Once you provide more details we will be able to assist and one of your tax experts will help.

A nonrecourse debt (loan) does not allow the lender to pursue anything other than the collateral. For example, if a borrower defaults on a nonrecourse home loan, the bank can only foreclose on the home. The bank generally cannot take further legal action to collect the money owed on the debt. Whether a debt is recourse or nonrecourse may vary from state to state, depending on state law.

[jmcc19]

Hi and thanks for the reply.

The answer to both of your questions is no.   We simply refinanced our primary residence.  No foreclosure. No special programs like the missed payments during Covid.  I have a call in to the mortgage company to find out more information.  I honestly have no idea how or why any debt was cancelled during a routine refinance.  But I have this 1099-C that I don't know how to enter in TT in the meantime.

I read up on Non Recourse loans and what it means, but I don't see why TT insists I have to enter the 1099-C as a sale of our home section just because it's non-recourse.  I'm also not even sure if my mortgage is non-recourse or not.  I live in NJ if that matters.  I will ask the company when they call me back, but I'm guessing that won't be until Monday at this point.

Thanks again.

[jmcc19]

Adding more detail after I spoke with the mortgage company.

There was a "cash back" offer with our refinance.  The maximum they can give directly is 2000, so any additional had to go as a cancellation of debt.  That is where this came from.

I have currently entered the 1099-C as Cancelled Debt --> "Another type of Debt, including a credit card, a car loan, a loan modification, or a mortgage on a second home".  It was easy to enter here and seems to have adjusted my tax burden properly.  I'm just not 100% sure this was the correct area to enter it.

The other option "Cancellation of debt on my main home (foreclosure or short sale)" was where I was previously trying to enter it.  It is on my main home, but was not part of a foreclosure or short sale. 

[DianeW777 · Accepted solution]

Continue to enter it as cancelled debt, not on your main home, because you still own the home in the transaction. Essentially this seems like a rebate that is considered taxable income. The bank issued the document which indicates a taxable transaction to the best of their understanding.