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What Is Form 1099C And What Do You Need To Know About It?

Form 1099-C is used to report a debt cancellation owed by you (an individual), a partnership, a company or corporation, a trust, an estate, or an association. This form is provided to you from the IRS when you owe a debt of $600 or more. The identifiable event of debt cancellation is determined by your lender or creditor and generally occur when they believe or have identified that you cannot pay what you owe. Before we continue, the term ‘debt’ means any amount owed to the lender or creditor, including principal, interest, administrative costs, fines, and penalties. The amount canceled may be all or only part of the total debt owed.

According to the Internal Revenue Service (IRS), nearly any debt you owe that is canceled, discharged or has forgiven becomes taxable income to you. You will receive a Form 1099-C, from the lender or creditor that states information about your  “Cancellation of Debt.”

What Situations Might Lead To Receive a 1099 C- Cancellation Of Debt Form?

Common examples include repossessions, abandonment or return of property to a lender (or short sales),  and foreclosure deficiencies .They also include settlements of less than the amount owed, and debt that is 3+ years old where there has been no considerable collections activity for the past year.

After negotiating a debt cancellation with your lender, if you receive a Form 1099-C, you will then have to report the amount mentioned on that form to the IRS as taxable income.

How The Internal Revenue Service Classifies Canceled Debt?

The IRS authority classifies unpaid debt as income because you received an amount that you didn’t return. This can be explained as when you first borrowed money, did you pay any tax on that amount? The answer is NO because you were bound to return that amount as per the contract. Once the contract ends, and you received income for free, the cancellation of your obligation makes it taxable (exceptions apply).


There are some exceptions to paying the taxes on the 1099-C. Some exceptions included are the insolvency exclusion and the Mortgage Forgiveness Debt Relief Act of 2007. The insolvency exclusion is applied when you are “insolvent” when what you owe, exceeds what you own.  If the amount that you owe, is more than the amount on the form 1099-C, you do not have to pay the amount on the 1099-C.  In this case, you must file Form 982.

The other exclusion is the Mortgage Forgiveness Debt Relief Act of 2007. This allows taxpayers to avoid paying taxes on up to $2 million dollars ($1 million if you file separately) of debt forgiven on their principle residence. This is only applied when a homeowner purchases or improves a property and the release is related to the decline in the home’s value or the taxpayer’s financial circumstances.

What to Do If You Want Further Assistance with these Forms?

STEP 1: Talk To A Financial Counselor

Call a financial advisor that you trust and is knowledgeable about these forms. Do not ignore the forms as the IRS does not go away and the issue may come back in the future.

If you are struggling to pay off debt that is owed, call United Financial Counselors.  We are professional credit and mortgage counselors who can educate you about your finances and help you establish a budget and a plan to move forward. You can reach us at Our counselors are ready and available to assist you today!

To learn more about our debt free programs, please visit “DEBT FREE WITHOUT BANKRUPTCY” 

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