Form 1099-C, Cancellation of Debt, is an IRS form used to report canceled or forgiven debt. Creditors, including banks, credit card companies, mortgage lenders, and other financial institutions, generally issue this form when they cancel or forgive a debt of $600 or more.
A canceled debt can come from many types of loans or obligations, including:
- Credit card debt
- Mortgage debt
- Personal loans
- Auto loans
- Certain student loans
If you receive a Form 1099-C, it means the lender is reporting the canceled amount to the IRS.
Is a Form 1099-C Taxable?
In many cases, yes. Canceled debt is generally considered taxable income by the IRS.
Here's why: when you originally borrowed the money, you received funds that weren't taxed because you were expected to repay them. If the lender later forgives the debt and you no longer have to pay it back, the IRS may treat that forgiven amount as income.
For example, if a credit card company forgives a $5,000 balance, you may need to report that $5,000 as income on your tax return.
However, not all canceled debt is taxable. Certain situations may allow you to exclude some or all of the forgiven debt from your income, such as:
- Bankruptcy
- Insolvency (when your debts exceed your assets)
- Other qualifying IRS exceptions
If you qualify for an exclusion, you may need to file Form 982 to claim it.
How Do I Enter Form 1099-C in the Program?
To enter Form 1099-C in the program:
- Go to the Federal section.
- Select Income (Select My Forms).
- Select Less Common Income.
- Choose Cancellation of Debt (Form 1099-C, Form 982).
Follow the prompts to enter the information exactly as it appears on your Form 1099-C.