What is IRS Form 1099-C?
Form 1099-C is a tax document issued by lenders to report canceled or forgiven debts of $600 or more to the IRS. When a lender forgives a portion or all of a debt, the IRS typically considers this canceled amount taxable income. Examples of debts that may result in a Form 1099-C include credit card debt, mortgages, student loans, or auto loans.
Who files Form 1099-C?
The responsibility for filing Form 1099-C falls on lenders and creditors, not the borrower. Lenders must provide a copy to the IRS and to the borrower by January 31 of the year following the debt cancellation. Borrowers are required to report the forgiven amount on their tax returns under “Other Income” on Form 1040.
Information contained in Form 1099-C
The form is divided into sections detailing:
- Box 1: Date of the identifiable event (e.g., foreclosure or settlement).
- Box 2: Amount of debt discharged.
- Box 3: Interest included in the discharged amount (if applicable).
- Box 4: Description of the canceled debt.
- Box 5: Indicates whether the borrower was personally liable for the debt.
- Box 7: Fair market value (FMV) of property if the debt was tied to a secured loan.
How to handle Form 1099-C as a taxpayer
Filing process
When you receive Form 1099-C, review its accuracy. Report the amount in Box 2 on your tax return, even if it is less than $600 and you did not receive the form. In cases where the amount is incorrect, contact the lender immediately for correction. Retain the form for your records but do not submit it to the IRS.
If you believe you qualify for an exclusion, such as debt discharged through bankruptcy or insolvency, complete IRS Form 982 to reduce or eliminate the taxable portion of the canceled debt.
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Exceptions to taxable debt
Not all canceled debts are taxable. Exceptions include:
- Bankruptcy or insolvency
- Certain student loan discharges (e.g., death, disability, or specific forgiveness programs)
- Some mortgage debt exclusions under the Mortgage Forgiveness Debt Relief Act.
- Non-recourse loans, where lenders cannot pursue additional payment beyond collateral.
Why proper reporting matters
Failing to report canceled debt correctly may result in penalties or trigger an IRS audit. If you receive Form 1099-C late, you must file an amended return using Form 1040-X to include the forgiven debt after filing your taxes.
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.
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.
Where to apply for debt cancellation
Taxpayers cannot “apply” for debt cancellation directly with the IRS. Instead, the process begins with the lender. If the lender agrees to forgive a debt, they issue a Form 1099-C reflecting the amount canceled. However, if the debt is disputed or misreported, seek professional tax advice to handle the issue properly.
For forms and guidance, visit the IRS official website or consult with a tax professional to ensure compliance with current laws and regulations
