What Is Form 1099-C: Cancellation of Debt?
Form 1099-C: Cancellation of Debt is required by the Internal Revenue Service (IRS) to report various payments and transactions made to taxpayers by lenders and creditors. These entities must file Form 1099-C if $600 or more in debt was canceled or forgiven. Taxpayers who receive the form must report the amount indicated as other income on their tax return. Canceled debt must be reported as taxable income on annual tax returns even if the issuer doesn’t send a Form 1099-C because the canceled debt is less than $600.
Key Takeaways
- A lender that cancels or forgives a debt of $600 or more must send Form 1099-C to the IRS and the borrower.
- If you receive a 1099-C, you may have to report the amount shown as taxable income on your income tax return.
- Because it’s considered income, the canceled debt has tax consequences and may lower any tax refund you are due.
Who Can File Form 1099-C: Cancellation of Debt?
There are three copies of the 1099-C. The lender must file Copy A with the IRS, send you Copy B, and retain Copy C.If you borrowed money from a commercial lender and at least $600 of that debt was canceled or forgiven, you should receive Form 1099-C from the lender.
For example, assume you borrow $10,000 and default on the loan after repaying $4,000. If the lender can’t collect the remaining debt from you, it may cancel the debt, which means the remaining $6,000 is reported on Form 1099-C. This amount is generally considered taxable income.
Common reasons lenders send 1099-C forms include:
- Foreclosure
- Repossession
- The return of property to a lender
- Abandonment of property
- Loan modification on a principal residence
- Resolving a credit card debt
Canceled debt counts as income in most cases, which means it must be reported to the IRS.
What Information Is on Form 1099-C?
The left side of the form includes details about the creditor and the borrower (the debtor), including names, addresses, tax identification numbers, and the associated account number. The right side of the form has seven boxes:
- Box 1: Date of identifiable event: Box 1 shows the date the earliest identifiable event occurred or the date of when the debt was discharged.
- Box 2: Amount of debt discharged: Box 2 shows the amount of debt actually or deemed discharged. Contact the creditor if you disagree with this amount.
- Box 3: Interest, if included in box 2: Box 3 shows interest included in the debt reported in box 2.
- Box 4: Debt description: Box 4 shows a description of the debt. If box 7 is completed, box 4 also shows a description of the property.
- Box 5: Check here if the debtor was personally liable for repayment of the debt: Box 5 shows if you were personally liable for repayment of the debt when the debt was created or when it was last modified, if applicable.
- Box 6: Identifiable event code: Box 6 shows the reason the creditor has filed the form.
- Box 7: Fair market value of property: If a foreclosure or abandonment of property occurred during the same year—and in connection with the canceled debt—box 7 shows the fair market value. Otherwise, you will receive a separate 1099-A form.
The American Rescue Plan includes a provision that makes all student loan forgiveness from Jan. 1, 2021, to Dec. 31, 2025, completely tax-free. That means your canceled student loan debt would not be included on Form 1099-C since it's not considered taxable income.
How to File Form 1099-C: Cancellation of Debt
Form 1099-C is used to declare amounts of $600 or more that are forgiven or canceled by a lender or creditor, including the abandonment of secured property or foreclosure. The amounts reported on the form may include principal, interest, fines, late fees, penalties, and administrative costs. You can download all three versions of the form from the IRS website.
When you receive the form, you must report the amount from Box 1 on your income tax return on the “Other income” line of your Form 1040 or 1040-SR. Note that you must include the canceled debt in your income even if it’s less than $600 and you don’t receive Form 1099-C. You do not need to submit Form 1099-C when you file your tax return, but you should hold onto it for your records.
You should receive Form 1099-C by Jan. 31 the year after the debt was canceled or forgiven. Make sure the information on your 1099-C is correct. If not, contact the lender and request a corrected form. It’s your responsibility to include the canceled debt on your tax return, so if you should have received one and didn’t, contact the creditor.
Because a creditor can choose to carry debt as long as it likes, you may not know that a 1099-C is coming to you and thus file your taxes before you receive it. If that happens, you should file an amended tax return, even if it doesn’t change your tax bill. If you don’t, it might serve as a red flag and lead to an IRS audit. You use IRS Form 982 to determine the amount of canceled debt that can be excluded from your gross income, and you always want that on record.
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Government and tribal-government employees and workers at nonprofits may qualify for the Public Service Loan Forgiveness (PSLF) program.
Which Canceled Debt Isn’t Taxable?
According to the IRS, there are situations when income from a canceled debt may not be taxable. This means you won’t receive a form if the following circ*mstances apply:
- Bankruptcy
- Insolvency
- Certain farm debts
- Nonrecourse loans
- Public service loan forgiveness
- Student loan forgiveness or repayment assistance
- Death or permanent disability of a student loan borrower
Certain types of mortgage debt may be excluded from taxes. The Mortgage Forgiveness Debt Relief Act of 2007, which was extended through 2020, allowed individuals to exclude up to $2 million of certain mortgage debt canceled by a lender if it involves a foreclosure, short sale, or the restructuring of a mortgage with a lower principal amount on a primary residence. The Consolidated Appropriations Act, which was signed into law on Dec. 27, 2020, extended this through 2025 but reduced the amount of debt that could be excluded to $750,000.
What Is Form 1099-C Used For?
Form 1099-C is a federal tax form required by the IRS. Lenders and other creditors must submit a copy to the agency and to taxpayers whenever they cancel or forgive a debt worth $600 or more. Forms must be sent to taxpayers by Jan. 31.
How Do I Report Information From Form 1099-C?
Issuers only send this form if the amount is $600 or more, but it is still your responsibility to report any amount that applies as a canceled or forgiven debt on your annual tax return. The amount listed in Box 1 of Form 1099-C must be entered on the “Other income” line of Form 1040 or 1040-SR.
Which Kinds of Debt Are Reported on Form 1099-C?
Lenders report various types of debt cancellation and forgiveness on Form 1099-C, including those related to foreclosure, repossession, the return of property to a lender, abandonment of secured property, loan modification on principal residences, the resolution of credit card debts, and student loan forgiveness for those on income-driven repayment plans.
The Bottom Line
Form 1099-C is used to report canceled or forgiven debt to the IRS. A creditor must file one form with the IRS, one form with the debtor, and retain one form for its records for any amount of debt that is $600 or more. If a taxpayer gets the form, they must report the amount on their tax return. Indeed, they must report any canceled debt on their return, even if the amount is less than $600 and no form is issued.
The canceled debt is generally considered to be taxable income. However, the IRS does exempt certain forms of it from taxation, so it’s important to understand what those exemptions constitute. After all, you don’t want to pay taxes that you don’t owe.
