I had a recent foreclosure on a rental property and I expect to get a 1099 C for this tax year. I'm trying to plan ahead on the cancellation of debt but I'm confused about when the IRS considers the debt cancelled. Is it when the bank filed the foreclosure with the court, or the sheriff sale date? Or some other date I haven't thought of.
Neither foreclosure nor sale of the property results per se in cancellation of the debt.
The net loss by the creditor is the difference between the remaining unpaid amount of the loan and amount the creditor recouped when the property was disposed of.
That net loss remains a debt of the consumer.
Cancellation would result only if the creditor chose not to pursue the remaining debt.
Have they informed you that they are going to excluse/cancel the remaining debt?
If a creditor sends a 1099c and cancels a debt, it becomes reportable by the consumer as "income" in the tax year that the creditor sends the 1099c.
Until then, there would be no basis for assuming the debt has been cancelled, and thus taxable.
I do realize the debt isn't necessarily cancelled, but I'm asking in case I do get a 1099 C in January. I think I will and I am certainly as insolvent as anyone ever was.
Unless they have formally conveyed to you some statement that the debt is cancelled, I see no basis until your receive such statement, such as by receipt of a 1099c, for making that assumption.
You may simply see reporting of the delinquent debt to a CRA, or receipt of a dunning notice or call from a debt collector.