The bank holding your mortgage is required to file with the IRS Form 1099–C, Cancellation of Debt (COD), reporting the amount of COD to be included on the individual’s tax return. The COD amount may include unpaid principal, accrued interest, penalties, and attorney fees. If you are insolvent under state law when you default, the amount of COD is not considered income. If you are working on a SHORT SALE, negotiate with the lender to waive the filing altogether. I am not a CPA, so please check with your advisors.

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