What Is Form 1099-C: Cancellation of Debt?
Form 1099-C (entitled Cancellation of Debt) is one of a series of "1099" forms used by the Internal Revenue Service (IRS) to report various payments and transactions, excluding employee wages. Lenders and creditors must send a 1099-C to the IRS and to borrowers if $600 or more in debt was canceled or forgiven.
In most cases canceled debt counts as income. If you receive Form 1099-C, you must report the amount 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.
- If a lender cancels or forgives a debt of $600 or more, it must send Form 1099-C to the IRS and the borrower to include on their tax return.
- 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.
Who Can File Form 1099-C: Cancellation of Debt?
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 IRS also receives a copy). 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, and resolving a credit card debt.
If you receive a 1099-C, make sure the information is correct. If not, contact the lender and request a corrected form.
What Is Form 1099-C Used For?
Form 1099-C is used to report a canceled or forgiven debt of $600 or more. The lender submits the form to the IRS and to the borrower, who uses the form to report the canceled debt on his or her income tax return.
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, said lender may cancel the debt—$6,000, in this example. That amount is reported on Form 1099-C and, in general, is taxable income to you.
According to the IRS, there are situations when income from a canceled debt may not be taxable, including:
- 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
The American Rescue Plan includes a provision that makes all student loan forgiveness from January 1, 2021, to December 31, 2025, completely tax-free.
In addition, 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.
How to Read Form 1099-C: Cancellation of Debt
All versions of Form 1099-C are available on the IRS website.
Below, you'll find a quick rundown of the 1099-C form. 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 (if you disagree with the amount, contact the creditor).
- 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.
All prior versions of Form 1099-C are available on the IRS website.
Where to Get Form 1099-C: Cancellation of Debt
If you borrowed money from a lender and at least $600 of that debt was canceled or forgiven, you should receive Form 1099-C from the lender (the IRS also receives a copy). 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, and federal student loan forgiveness for borrowers on income-driven repayment plans. If you should have received one and didn't, contact the creditor. It’s your responsibility to include the canceled debt on your tax return.
Where to Mail 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. You do not need to submit Form 1099-C when you file your tax return, but you should hold onto it for your records.