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.
- 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 were due.
- The canceled or forgiven amount is entered as other income on Form 1040 or 1040-SR.
- Issuers should send taxpayers Form 1099-C by January 31.
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. The issuer also sends a copy of the form to the IRS. 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, they 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:
- The return of property to a lender
- Abandonment of property
- Loan modification on a principal residence
- Resolving a credit card debt
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, or you will receive a separate 1099-A form.
The American Rescue Plan includes a provision that makes all student loan forgiveness from January 1, 2021, to December 31, 2025, completely tax-free.
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.
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 January 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.
Download Form 1099-C: Cancellation of Debt Here
All versions of Form 1099-C are available on the IRS website. You can access the current year's form by clicking on this link.
Government and tribal government employees and workers of non-profits may qualify for the Public Service Loan Forgiveness Program. And you may be eligible for a limited PSLF waiver, which allows you to get credit for previous periods of repayment. The program ends on Oct. 31, 2022, so be sure you apply to see if you qualify before that date.
Special Circumstances When Filing Form 1099-C: Cancellation of Debt
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 circumstances apply:
- Certain farm debts
- Non-recourse 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 (extended through 2020) allows 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.
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 January 31.
How Do I Report Form 1099-C?
Issuers only send a form if it 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.
What Kind of Debt Is 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.