This is the 8th tip of “10 Questions You Should Ask About Florida Short Sales” eBook, which is available as a FREE download.
If a Florida short sale lender cancels debt, there may indeed be tax consequences. The Internal Revenue Service treats cancelled debt as income. The 1099-C Form from the IRS gives a nutshell version of what cancelled debt means to a debtor and taxpayer in its “Instructions for Debtor”:
“If a Federal Government agency, certain agencies connected with the Federal Government, financial institution, credit union, or an organization having a significant trade or business of lending money (such as a finance or credit card company) cancels or forgives a debt you owe of more than $600 or more, this form [i.e., the 1099-C] must be provided to you. Generally, if you are an individual, you must include all canceled amounts, even if less than $600, on the “Other income” line of Form 1040 . . . .”