NateW
Recycles dryer sheets
- Joined
- Jul 30, 2011
- Messages
- 425
I received a 1099-Misc that includes taxable and nontaxable income in Box 3 (other income). No other income is shown. When filing my taxes, how do I report/include only the taxable portion of this income, knowing the IRS is receiving a copy of my 1099-Misc?
Here is the history behind this unexpected payment I received. When I divorced in 2001 my ex wished to remain in the marital home because of her 2 young children (from her previous marriage) and I agreed, but she was $25,000 short of the amount needed to buy me out of my half of the home's equity, so I loaned her the $25,000. The attorney I retained to draft the Property Separation Agreement recorded in the county land records a $25,000 lien on the house, with me being to note holder. The separation agreement contained the terms of the loan, which basically said 6% interest compound annually, interest and principal due in 15 years (a balloon payment).
Four years later my ex wished to do a cash-out refinance on the home and the only way the lender would approve her loan, because I was a lienholder, was if I signed a subordinate agreement, where the lender would be first in line to be paid from the proceeds from the sale of the house if she defaulted. I signed the subordinate agreement and in exchange, received $10,000 out of her refinance cash out proceeds as partial repayment (I did this because I thought I would never receive another payment from her, given her track record). I mailed my ex a receipt noting the amounts of the $10,000 applied to principal (about $2000) and interest.
I was correct in my thinking, I never received another penny from her. Sometime in 2018 I discovered her home went into foreclosure. Also around that time my ex contacted me and said I would get paid because a buyer was found, but that deal fell through because the potential buyer could not get her out of the house!
Several people I checked with who seemed to know about foreclosures and lienholders said I would never be paid and that my lien dissolves upon foreclosure.
Then last year, just before my mail forwarding order expired, I received a letter addressed to my old address from an attorney asking me to provide copies of my driver's license and SS card and a payoff statement for the lien on the house. I called the law office, after verifying it was a law office and the phone number was in fact, theirs. When I called I told them the payoff amount and asked how much I would get. "All of it," I was told. Payoff was about $40,000, with about $23,000 covering principal and the rest interest.
So how do I convince the IRS I only received $17,000 in interest income from the law firm? I think the law firm completed the 1099-Misc corectly-- they did pay me $40,000, and no categories on the 1099 cover the type of payment. There are no boxes for non-taxable amounts.
It's very important that I report this correctly because, although it's bad enough paying taxes on money that was mine to begin with, I received an approximately $17,000 credit through the Affordable Care Act that I will have to repay if the IRS considers the full $40,000 as income. I do have at least $23,000 leeway before I hit the credit cliff/income limit.
Thanks.
Here is the history behind this unexpected payment I received. When I divorced in 2001 my ex wished to remain in the marital home because of her 2 young children (from her previous marriage) and I agreed, but she was $25,000 short of the amount needed to buy me out of my half of the home's equity, so I loaned her the $25,000. The attorney I retained to draft the Property Separation Agreement recorded in the county land records a $25,000 lien on the house, with me being to note holder. The separation agreement contained the terms of the loan, which basically said 6% interest compound annually, interest and principal due in 15 years (a balloon payment).
Four years later my ex wished to do a cash-out refinance on the home and the only way the lender would approve her loan, because I was a lienholder, was if I signed a subordinate agreement, where the lender would be first in line to be paid from the proceeds from the sale of the house if she defaulted. I signed the subordinate agreement and in exchange, received $10,000 out of her refinance cash out proceeds as partial repayment (I did this because I thought I would never receive another payment from her, given her track record). I mailed my ex a receipt noting the amounts of the $10,000 applied to principal (about $2000) and interest.
I was correct in my thinking, I never received another penny from her. Sometime in 2018 I discovered her home went into foreclosure. Also around that time my ex contacted me and said I would get paid because a buyer was found, but that deal fell through because the potential buyer could not get her out of the house!
Several people I checked with who seemed to know about foreclosures and lienholders said I would never be paid and that my lien dissolves upon foreclosure.
Then last year, just before my mail forwarding order expired, I received a letter addressed to my old address from an attorney asking me to provide copies of my driver's license and SS card and a payoff statement for the lien on the house. I called the law office, after verifying it was a law office and the phone number was in fact, theirs. When I called I told them the payoff amount and asked how much I would get. "All of it," I was told. Payoff was about $40,000, with about $23,000 covering principal and the rest interest.
So how do I convince the IRS I only received $17,000 in interest income from the law firm? I think the law firm completed the 1099-Misc corectly-- they did pay me $40,000, and no categories on the 1099 cover the type of payment. There are no boxes for non-taxable amounts.
It's very important that I report this correctly because, although it's bad enough paying taxes on money that was mine to begin with, I received an approximately $17,000 credit through the Affordable Care Act that I will have to repay if the IRS considers the full $40,000 as income. I do have at least $23,000 leeway before I hit the credit cliff/income limit.
Thanks.