Key takeaways

  • You will receive a 1099-C Cancellation of Debt form if a lender forgives more than $600 of taxable debt on your behalf.
  • You must include the amount of canceled debt on your federal tax return as a part of your taxable income.
  • There are instances that warrant the exclusion of forgiven debt from your return.

If you have more than $600 of taxable debt forgiven, you’ll receive a 1099-C Cancellation of Debt form from the lender. This form is a tax document that the lender is required to file. It will also help you determine whether you owe debt forgiveness taxes, so you’ll want to have it handy at tax time.

A lot of people don’t know the 1099-C Cancellation of Debt form exists, so it can be a shock to receive one. It is important to know what Form 1099-C is, what you should do when you receive a 1099-C and how you can determine whether your debt is excluded from debt settlement taxes.

What information is on a 1099-C form?

The 1099-C cancellation of debt form includes the following:

  • Creditor’s name, address, telephone number and TIN (xxx)
  • Debtor’s name, address
  • Account number
  • Debt cancellation date (Line 1)
  • Amount of canceled debt (Line 2)
  • Interest on canceled debt reported on line 2 (Line 3)
  • Description of forgiven debt (Line 4)
  • Checkbox indicating if you were personally liable for the forgiven debt (Line 5)
  • Event code identifier or the reason for the filing (Line 6)
  • Fair market value of the property (if applicable)  (Line 7)

Who can file a 1099-C form?

You must file the 1099-C form received from the lender if you had more than $600 of debt canceled or forgiven. There are exceptions that apply if the debt falls into one of the excluded categories. The lender is also responsible for filing a copy of the form with the IRS and retaining a separate copy for their records.

What does cancellation of debt mean?

Cancellation of debt is exactly what it sounds like — you had a debt, and it was canceled. If you negotiate a debt settlement on your credit cards, for example, you might have some of your credit card debt forgiven. That counts as cancellation of debt, and you should expect a 1099-C cancellation of debt form in the mail.

You might also have debts canceled if your student loans are forgiven, if your mortgage is modified or even if your home goes into foreclosure. All of these canceled debts could generate a 1099-C form, meaning you might have to pay debt forgiveness or settlement tax on your canceled debt.

When do you have to pay debt forgiveness taxes?

In most cases, you must report canceled debt as ordinary income on your federal tax return — even if the debt was less than $600 and you never received a Form 1099-C. List your canceled debt on Form 1040 under Schedule 1: Other Income. Your canceled debt will become part of your taxable income, which means you might owe debt forgiveness taxes on your canceled debt.

You aren’t paying a separate tax on your canceled debt. The amount of debt that was canceled is treated as income and rolled into your overall tax return. The tax you owe will depend on your income, adjustments, deductions and credits—not to mention the tax money you’ve already asked the IRS to withhold from your paychecks.

This is why you won’t be able to find a “1099-C tax calculator” online. It’s not a separate tax. It’s included as part of your annual income and rolled into your overall tax burden.

You could have a debt canceled, report your canceled debt as ordinary income on your taxes and get a tax refund. However, if your canceled debt significantly increases your income, you’re probably going to owe a little more tax than usual. Be prepared, and consider putting a little extra money in your emergency fund to cover the cost.

How to file a 1099-C form

When you receive a 1099-C form, file it somewhere safe. You’re going to need it when you start filing your taxes. It should arrive in your mailbox by Jan. 31 of the year after the debt was forgiven or canceled.

If you work with a CPA or tax preparer, ensure they know you have received a 1099-C form and give them a copy. Also, check it for accuracy and notify the lender or creditor if discrepancies need to be rectified before filing your federal return.

The amount listed in Box 1 should be included on the “Other income” line on your Form 1040 (U.S. Individual Income Tax Return). If you didn’t get a 1099-C form in the mail but had debts forgiven or canceled, it should also be included on this line.

If you believe your canceled debt should be excluded from your taxable income, you will need to file Form 982 with your tax return. Form 982 lets the IRS know why your canceled debt should be excluded from debt forgiveness taxes so you don’t end up paying more tax than you owe. If you have questions about your 1099-C form or are curious whether you should file Form 982, talk to a CPA or qualified tax professional.

Exclusions to debt forgiveness taxes

The IRS has a number of 1099 debt forgiveness exclusions — which means if your debt falls into an excepted or excluded category, you do not have to include it as ordinary income on your tax return.

Some common exceptions to the debt cancellation rule include:

  • Amounts canceled as gifts, bequests, devises or inheritances
  • Certain qualified student loans
  • Certain other education loan repayment or loan forgiveness programs to help provide health services in certain areas
  • Canceled debt that would be deductible if you paid it
  • A qualified purchase price reduction on a property
  • Any amounts discharged from certain federal, private or educational student loans

Here are some common debts that the IRS states can be excluded from your gross income:

  • Debt canceled in a Title 11 bankruptcy case
  • Debt canceled to the extent insolvent
  • Cancellation of qualified farm/residential property indebtedness
  • Cancellation of qualified real property business indebtedness
  • Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2026

If your debts cannot be canceled and you do not qualify for a payment plan with the IRS, you may want to consider consolidating them or looking into debt relief. These options should not be relied on if you qualify for an IRS plan, as the cost for a payment plan with the IRS is likely much less than you would pay using a third-party option.

Once you have confirmed you don’t qualify for debt cancelation or an IRS payment plan, there are many types of debt consolidation to explore, including debt consolidation loans.

FAQs on cancellation of debt taxes

  • If you know you have a canceled debt of over $600 but didn’t receive a 1099-C, it’s still your responsibility to include the forgiven debt on your federal tax return. Just because your lender failed to file a 1099-C doesn’t mean you can avoid reporting your debt on your taxes. If you know the exact amount of your forgiven debt, you can include it on Form 1040. If you are unsure how much of your debt was forgiven, you must contact your creditor.
  • If you lose your Form 1099-C, you can ask your lender for another copy.
  • If you have a 1099-C form but did not include the forgiven debt as taxable income, you can file an amendment to your tax return. Use Form 1040X, and be prepared to pay any extra tax you might owe.
  • If you have a canceled debt under $600, you still need to report it as income on your taxes. Include your canceled debt on Form 1040, Schedule 1: Other Income.
  • If you don’t know whether or not to exclude your debt from your taxable income, talk to a CPA or trusted tax professional.
  • Although there is a statute of limitations on old debt, there’s no statute of limitations on 1099-C forms—which means that lenders and debt collectors occasionally send out 1099-C forms on very old debts.If you receive a 1099-C on an old debt, your best option is to contact a CPA or tax professional. They’ll help you determine how to settle the outstanding tax issue. You may be able to qualify for an exemption, have to amend an old tax return and be able to deal with the 1099-C on your current tax return.
  • Sometimes creditors and debt collectors make mistakes. You might receive a 1099-C form for a debt you paid in full. You might also receive a 1099-C form for a debt that was forgiven, but the creditor listed the wrong amount of canceled debt on the form.If you believe your 1099-C form is incorrect, your first step is to contact your creditor or debt collector. Explain the discrepancy and ask them to file a corrected 1099-C with the IRS (and send you a copy). If that doesn’t work, your next step is to contact the IRS and issue a Form 1099-C Complaint. From there, the IRS will contact the creditor and begin resolving the dispute.