What Is Form 1099-C: Cancellation of Debt?

Lenders must submit Form 1099-C: Cancellation of Debt to the Internal Revenue Service (IRS) when they forgive or cancel $600 or more that a taxpayer owes. The taxpayer then keeps this money, so it's considered income.

Therefore, it must be reported on the taxpayer's return, and tax must be paid on it. The lender must also send the debtor a copy of the form.

How Form 1099-C Works

Form 1099-C notifies the IRS and the debtor that $600 or more is no longer payable to a creditor. In most cases, the IRS considers this taxable income to the debtor. Forgiven debt can involve canceling a credit card balance owed, repossessing a financed vehicle, or foreclosing on real estat♛e.

Special rules apply to repossessions and foreclosures when the lender claims the property in exchange for canceling the associated debt. The IRS assumes that this is the same as the debtor selling the property to the lender if the debtor was personally liable for the loan in question and it was 澳洲幸运5开奖号码历史查询:secured by the claimed property.

In this case, the property's fair market value is subtracted from the amount of the forgiven debt. The difference is taxable at ordinary income tax rates. The lender should report the sum to the IRS on Form 1099-C. In this case, you and the IRS should also receive a copy of Form 1099-A.

The amount of debt reported on Form 1099-C as income is otherwise pretty straightforward. You might owe $3,000 on a credit card and lose your job, so you can't pay that balance. You reach out to the lender, who agrees to cancel the debt rather than go through the expense and difficulty of 澳洲幸运5开奖号码历史查询:trying to collect from you. This $3,000 amount exceeds $600, so it should be reported on Form 1099-C and filed with the IܫRS.

Some Debts Don't Require Form 1099-C

Lenders are required to send copies of Forms 1099-C to debtors by Jan. 31 of the year after the repossession or foreclosure took place or the debt was canceled. You most likely won't receive one if the 澳洲幸运5开奖号码历史查询:canceled debt is less than $600.

However, you must still report the sum on your tax return, even if the debt was just $1. That's still one dollar you didn't have before the cancellation event occurred.

You won't receive the form if your canceled debt isn't taxable—and some debts aren't. Those that are discharged because you filed for bankruptcy are exempt, as are nonrecourse loans for which you weren't personally liable.

Under the American Rescue Plan, student loans forgiven between Jan. 1, 2023, and Dec. 31, 2025, aren't taxable and wouldn't require a Form 1099-C. Additionally, the 澳洲幸运5开奖号码历史♐查询:Public Service Loan Forgiveness Program exempts the debts of certain government employees who work at nonprofits.

What's Included on Form 1099-C?

Form 1099-C includes a wide range of information about the loan or debt. The left side of the form is dedicated to identifying the lender and the debtor. The right side is segregated into several boxes, all clearly labeled. The information entered here includes (by box number):

1. The date when the debt was forgiven
2. The amount of the debt
3. The amount of any interest included in the debt
4. A description of the debt
5. Whether the debtor was personally liable for the debt
6. The reason the creditor is submitting the form, such as a balance of $600 or more
7. The fair market value of any property if the event involved a foreclosure

The debt's account number should be entered at the bottom left corner of the form.

All pages of Form 1099-C are available .

Preparing Your Tax Return

The amount of your debt appears in Box 2 of Form 1099-C. It must be🎐 reported as other income on your tax return. Enter this number on line 8c of , which you must submit with your return. The line is clearly labeled "Cancellation of debt."

The first page of Schedule 1 includes numerous other unusual income sources, totaled at the bottom in Box 10. You can then transfer this number to line 8 on your tax return.

You don't have to file Form 1099-C with your tax return because the IRS already has a copy.

The Bottom Line

Unsurprisingly, the Internal Revenue Service wants its percentage of all income you take in even if you don't realize the 澳洲幸运5开奖号码历史查询:money is income. Form 1099-C is your flag in cases of forgiven or canceled debt. If▨ you don't receive one because you've moved, there was another discrepancy, or if your debt was less than $600, you must still include the amount on your tax return.

Reach out to your creditor if you think you should have received a copy of the form but didn't or if you received one for debt that you didn't realize was forgiven. There could be a reasonable explanation, such as that the debt isn't taxable.

You can file an amended tax return if you didn't realize the error after filing your return or if you didn't realize you were supposed to include it in your income.