What is a 1099c and Debt Cancellation

When you complete a short sale a lender may issue you a 1099c.  A 1099c is termed an issuance of a tax document which reflects a cancellation of Debt.  What does this mean to you and me.  Well it means that the bank will cancel the debt and not pursue you unless they reserved their rights in the short sale approval letter.

So once you receive a 1099c and are excused from this debt, Uncle Sam still sees that cancellation of debt as income.  Phantom Income as some put it but income nonetheless taxable at your tax bracket.

In most cases if your negotiator is an Attorney or you are working with a Tax professional most people doing or having to do a Short Sale will file documents with the IRS to show that this income is excused not only by the lender but also by Uncle Sam.