Do you still pay taxes via a 1099 on a home that used to be your permanent residence but rented out after moving2 years earlier?

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Do you still pay taxes via a 1099 on a home that used to be your permanent residence but rented out after moving2 years earlier?

My husband and I bought our first home/townhome 4 years ago; 2 years later we got pregnant and had to move to a larger home. We tried our best to keep our townhome by renting it out but our renter was unreliable and efforts to evict him failed. We know we’ll receive a 1099 claiming the forgiveness of our loan was income. But, can we file some sort of exception because we occupied it for 2 years?

Asked on September 28, 2011 under Real Estate Law, Arizona

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If you were receiving rental income from the rental of your town home from your former tenants, you need to report that income on your state and federal income tax returns.

If you lost this town house in a foreclosure where the loan to acquire it was "purchase money" and there is no recourse to you for the loan and it was forgiven where you owe no money on it, most likely you will have a tax issue as to this forgiveness of debt as being reportable income especially if you receive a 1099 from the lender whose entire loan was not paid in full.

To be sure, you need to consult with a reputable tax adviser (certified public accountant) to be sure and to see what can be done about this issue and the effect upon your finances.

Good luck.


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