A "short sale" is when a home is sold for less than the amount still owed on the mortgage and an attempt is made to get the lender to forgive the unpaid balance.
If you received a Form 1099-C Cancellation of Debt, this income may qualify to be excluded on your tax return if it is a "qualified principal residence indebtedness." To determine if this fits your situation, see page 9 of IRS Publication 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).
If you qualify for the exclusion, you would use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to report the exclusion of the canceled debt. The Form 982 interview will follow after the Form 1099-C interview screens.
Note. If you did not receive a Form 1099-C from the lender, you should not have any canceled debt income and should not need to file Form 982.
To access Form 1099-C in the TaxAct program, go to our Form 1099-C - Entering Cancellation of Debt in Program FAQ.
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