By now, you probably have a stack of tax forms from employers, banks, stockbrokers, lenders and more on your desk – or more likely, the kitchen counter. For some of you, those tax forms will end up in the hands of your tax professional (for more on hiring a tax professional, click here); the rest of you will input the information on those forms, box for box, into tax preparation software – maybe with a little swearing along the way. No matter how you plan to do your taxes this year, you likely don’t know what all of the numbers, letters and other information on those forms mean. That’s about to change. This is the next in a series of posts meant help you make sense of all of those forms.

Here’s what you should know about the form 1099-C, Cancellation of Debt:

A form 1099-C, Cancellation of Debt, is issued by a creditor when a debt is discharged for less than the full amount you owe following an identifiable event and that amount is $600 or more (you are still required to report discharged debt in income even if it is less than $600). The identifiable event is determined by the creditor and generally occurs when the creditor believes that you cannot pay what you owe or if the creditor will be unable to collect what is owed. This could also be the result of a foreclosure, a repossession, a voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification.

If you have cancellation of debt for less than the amount you owe, the amount of the canceled debt is considered income and may be taxable. I say “may” because there are exceptions and exclusions to this rule.

Even if you qualify for an exception or exclusion, you may still receive a form 1099-C. This is because the creditor doesn’t know whether you might have an exception or an exclusion: their responsibility is simply to report the details, including the amount of cancellation of debt and the date of cancellation. However, if the person who is issuing the form 1099-C has reason to know that the discharge of debt would not be reportable (such as, for example, if it were a gift between related parties or if there were a qualifying bankruptcy), then the form 1099-C shouldn’t be issued.

Generally, you have to report the canceled debt as income unless an exclusion applies. The most common exclusions include bankruptcy, insolvency and qualified principal residence indebtedness:

  • If your debt was canceled as part of a Title 11 bankruptcy (includes Chapters 7, 11, and 13), it’s not includible in your income. To report the exclusion, attach form 982 (downloads as a pdf) to your tax return and check the box at Part I, line 1a of the form. Enter the amount of canceled debt as a result of the bankruptcy case on line 2. You may also have to fill out part II of the form.
  • If just before your debt was canceled, you were insolvent, you can exclude the debt from income. Use the insolvency worksheet to figure out whether this applies to you. Generally, you are insolvent to the extent that the total of all of your liabilities was more than the value of all of your assets immediately before the cancellation. To report the exclusion, attach form 982 (downloads as a pdf) to your tax return and check the box at Part I, line 1b of the form. Enter the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately before the cancellation (use the worksheet to find this figure). You may also have to fill out part II of the form.
  • If your canceled debt is qualified principal residence indebtedness, it’s not includible in your income. Qualified principal residence indebtedness means a mortgage that you took out to buy, build, or substantially improve your main home (the one that you in live most of the time). The mortgage must be secured by your main home and the amount available for exclusion must not exceed $2 million ($1 million if married filing separately). To report the exclusion, attach form 982 (downloads as a pdf) to your tax return and check the box at Part I, line 1e of the form. Enter the amount of the forgiven mortgage on line 2 but do not report more than the amount of the exclusion limit. If you continue to own your home after a cancellation of qualified principal residence indebtedness, you must reduce your basis (generally, the purchase price plus adjustments) in the home.

Note that these exclusions can be tricky and you may need to consult with your tax professional.


The payer’s identifying information is reported on the top left side of form 1099-C while your identifying information is reported on the lower left side of the form. This includes your name and your address. Your Social Security Number may also be on the form – or just the last few digits. The first digits of the number may be redacted for your privacy (this is a relatively new development for certain forms); no matter what your copy indicates, the lender will report your entire Social Security Number on the Copy A provided to IRS.

Often, on tax forms, the account number is considered optional – you might see them or you might not. However, you’re more likely to see them on a form 1099-C than not: the IRS encourages lenders to include them. You’ll definitely see an account number if you have multiple accounts with a creditor who is issuing more than one form 1099-C to you: in that event, they’re required.

In box 1, you’ll see a date. That date is the date that the creditor determined an identifiable event occurred. Examples might include a discharge in bankruptcy under Title 11; a receivership or foreclosure; a court proceeding; an agreement between the creditor and the debtor to cancel the debt at less than full consideration; a short sale; or a creditor’s decision to no longer pursue collections.

The amount that you still owed on the debt as of the date in box 1 is reported in box 2.

The amount of interest that was forgiven is reported in box 3. If the creditor included any interest in the amount reported in box 2, it must also be reported here. Otherwise, the creditor doesn’t have to report the interest. Whether the interest must be included in your income depends on whether the interest would be deductible if you paid it (as for a mortgage, for example).

Box 4 is pretty self-explanatory: it’s a general description of the debt being discharged. In my example, I used a mortgage but you might also see this reported as a credit card debt or student loan.

If you are personally liable for repayment of the debt, you’ll see box 5 checked. This is typically not the case for something like a mortgage which is secured by collateral but may be the case with other kinds of loans, like student debt.

At box 6, you’ll see a code. This shows the reason that you’re receiving the form 1099-C. The codes are:
A – Bankruptcy (Title 11)
B – Other judicial debt relief (receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy)
C – Statute of limitations or expiration of deficiency period
D – Foreclosure election
E – Debt relief from probate or similar proceeding
F – By agreement
G – Decision or policy to discontinue collection
H – Expiration of nonpayment testing period
I – Other actual discharge before identifiable event
It’s important that the correct code is used because it may affect whether the debt is taxable to you in whole or in part.

That said, if you receive a form 1099-C showing any incorrect information, you should contact the creditor to make corrections. But be careful: you still have a responsibility to report the taxable amount of canceled debt as income whether or not you receive a correct form 1099-C.

If you abandoned property or it was subject a foreclosure in connection with a cancellation of the debt, the fair market value (FMV) of the property will be shown in box 7 or you will receive a separate form 1099-A. If the debt is canceled and is in connection with a foreclosure or abandonment of secured property, you should not receive a form 1099-A and a form 1099-C: you should only receive a form 1099-C. However, if you do receive both for the same property and from the same debtor, there should be empty boxes (4, 5, and 7) on form 1099-C. See more on form 1099-A here.

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