I lost my home. Now I received a 1099 from my mortgage lender

People who lose their homes in foreclosure, abandon them or give them back to their lenders will receive a Form 1099-C Cancellation of Debt because the lender has forgiven a portion of the debt.

The forgiven amount is the difference between the amount owed on the mortgage and the value of the home. Prior to 2007, consumers had to pay federal taxes on the forgiven amount.

Debt relief = Taxable Income

Have you negotiated with a creditor to pay less than you owe on a debt such as a credit card? The IRS considers forgiven or canceled debt as taxable income.

You hear the commercials all the time: Companies that negotiate on behalf of consumers with debt collectors to pay off a portion of their outstanding debts. Several months later, these consumers receive a Form 1099-C. Creditors who accept at least $600 less than the original balance are required by law to issue this form to the debtor and the IRS.

If you're negotiating with a collector to settle a debt, clarify if a Form 1099-C will be issued and the exact amount that will be reported to the IRS. Make sure you bring the Form 1099-C along with W-2s and other forms when you visit your tax preparer. If the 1099-C is incorrect, contact the debt collector immediately and ask for a corrected 1099-C form.

In most cases, Form 1099-C is reported on line 21 of the Form 1040 long form and is included as ordinary income.