What is 1099-C Cancellation of Debt?

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.

How do I report a 1099-C Cancellation of Debt?

In some cases, your forgiven debt is taxable – and in some it’s not. When it is taxable nonbusiness debt, you’ll use the copy of the 1099-C to use to report it on Schedule 1 of Form 1040 as other income.

Is 1099-C Cancellation of Debt taxable?

According to the IRS, nearly any debt you owe that is canceled, forgiven or discharged becomes taxable income to you. You’ll receive a Form 1099-C, “Cancellation of Debt,” from the lender that forgave the debt.

Does cancellation of debt need to be reported on tax return?

In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.

What happens if you don’t report a 1099-C?

In short, you’ll have to pay taxes on the extra income. That might mean your refund is reduced or that you owe more taxes than you would otherwise. In cases where the 1099-C canceled debt falls under an IRS exclusion—which means you don’t have to pay taxes on all or some of the income—you still may need to file a form.

What do you do if you receive a 1099-C after filing taxes?

If you receive a 1099-C after filing taxes and you are insolvent, you probably do not owe any additional taxes on that amount. You must file form 982 along with the amended return to verify this insolvency and show that no tax is due on the income shown on the 1099-C form.

What happens if I don’t report my 1099-C?

How do I avoid paying taxes on 1099-C?

To establish your right to exclude the money shown on the 1099, you have to file IRS form 982. If you don’t file the form and claim the exception, the IRS has no way to know that, despite the debt forgiveness, there is no tax payable.

What happens to canceled debt on Form 1099-C?

If a Form 1099-C Cancellation of Debt for canceled debt is issued to an S Corporation, the income inclusion (or exclusion) is applied at the corporate level.

What to do if you receive a 1099-C with incorrect information?

If you received a Form 1099-C showing incorrect information, contact the creditor to make corrections. For example, if the creditor is continuing to try to collect the debt after sending you a Form 1099-C, the creditor may not have canceled the debt and, as a result, you may not have income from a canceled debt.

Can you exclude discharged indebtedness on Form 982?

However, under certain circumstances described in section 108, you can exclude the amount of discharged indebtedness from your gross income. You must file Form 982 to report the exclusion and the reduction of certain tax attributes either dollar for dollar or 33 1 / 3 cents per dollar (as explained later).

How to report discharge of indebtedness on tax return?

You must attach to your tax return a Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to report the amount qualifying for exclusion and any corresponding reduction of those tax attributes.