paying Fed and State taxes on foreclosure and loan mods/ IRS 1099's

We rec a 1099 from our bank for a loan modification we did in 2009. We were upside down financially at the time of the loan modification and under hardship. We did not claim this as income it on our 09 taxes. Will this come back to haunt us? There is mixed messages online on this topic. Also, several friends have forclosed. WIll they, too, get 1099 and if so are they responsible for the taxes owed? Or does govenment forgive this debt?  Therefore is is likely that many people who are walking away from homes face uncertain disaster when IRS comes back for this money owed in taxes??? Please clarify. Thanks
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December 21 2010 - Modesto
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Answers (2)

It depends on the type of loan you had (purchase money or re-fi), but there is currently state and federal moratorium on taxes for forgiven debt.  You need to consult with your accountant as there is a form that needs to be used and filed with your return.
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December 22 2010
For your specific situation, it's best to talk to a tax professional (someone with tax experience and not just a tax preparer). When you do, show them a copy of what you have printed out from the link below and ask them if this fits your specific situation. In many (but not all) cases, the tax debt is forgiven by the IRS.

http://www.irs.gov/individuals/article/0,,id=179414,00.html

To ask the IRS, call 1-800-829-1040

Also, the bank is required by law to provide you with a 1099. Whether or not you end up owing taxes on the amount depends on your specific situation.
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December 21 2010
 
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