Originally Posted by dmurphy0214
I am going to be getting a 1099c on a home I could not afford the mortgage on in another state from where I live now. I had to move when my job moved and I could not afford both houses. I tried paying for both for about three years while having the home on the market to sell, but it wouldn't sell. In the end I turned this back over to the lender voluntarily through a deed in lieu of forclosure. I have a deed of trust stating that the debt was fully paid. A friend of mine told me I should talk to the lender to verify if they were going to be sending a 1099c to the IRS and for how much. When I asked the lender if they were going to file a 1099c and they said they are for 26,400. There is no way I can afford the taxes on that so I'm trying to see if there is a way around this.
I am told that you may not have to claim the 1099c on your federal income taxes if you meet one of the criteria on a list of about five requirements the IRS has listed. And one of them is if you're insolvent. The way I understand insolvency it is when you have more liabilities than you do assets and that it is like you are bankrupt without legally being bankrupt. Someone may correct me on this if I'm wrong as I'm still learning.
If I want to try to use this as my argument to avoid the taxes on the 1099c what is required of me to prove that I was insolvent at the time that I did a deed in lieu? Can I send the IRS a letter stating that I was Insolvent and list my assets and liabilties. I have copies of my credit card statements, loan statements, and bank statements from that month will those work as proof or do I need something legally proving that I was insolvent?
