Where does 1099 c go on tax return

Receiving a 1099-C does impact your credit report and score and also has Federal income tax consequences.

Have you ever received a Schedule 1099-C because you have had some of your debt forgiven? If so, how does this relate to your credit report?

I am a Michigan State University Extension foreclosure counselor, and several clients I worked with had debts forgiven and the debt still showed up on their credit reports as collectable. Sometimes, even when debt has been forgiven, the lender may not have reported it to the credit-reporting bureaus. The debt may have even been sold to a debt collector. If this happens the creditor may have no legal right to collect once the debt has been forgiven and a Schedule 1099-C issued. It’s best to discuss your personal situation with an attorney who specializes in consumer protection if you can’t resolve the issue on your own.

The Form 1099-C denotes debts that have been forgiven by creditors. It is also known as a “cancellation of debt.” According to the IRS, lenders must file this form for each debtor for whom they canceled $600 or more of a debt owed to them. A 1099-C is sent when a consumer settles a debt with a creditor, or the creditor has chosen to not try to collect a debt. It is important to know that when a creditor is no longer attempting to collect any of the unpaid principal balance on a debt, they must report this amount to the IRS.

An important point to understand is that canceled or settled debts are not the same as debts that have been “paid in full.” If you’ve settled your debts, they will appear on your credit report and are considered derogatory because it basically means your loan went into default. This information can remain on your credit report for up to seven years.

If you are able to get your debt completely canceled, you then no longer have any responsibility for the amount owed. But the creditor must report the canceled amount or settled debt to the IRS using the Form 1099-C cancellation of debt. The amount that was canceled is now considered income to you and it must be reported as such on your tax return.

Tip: Keep in mind that you can settle your debts on your own. Paying a company to do it just takes more money out of your pocket that could have been used to pay off some of the debt.

If, at the time your debt was  canceled, you had a negative net worth, you may be considered insolvent. This gives you the opportunity to check if you have to report all or part of the charge-off to the IRS. You’d have to file IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, if you want to claim the insolvency exemption.

Given all of that, it may still be a very good idea to settle some or all of your debts. As long as you understand that doing so will technically increase your income resulting in less of a tax refund or putting you in a situation where you have to pay additional federal income tax. Of course, always consult a reputable tax professional with tax-related questions.

If you and your family or someone you know is struggling with creditors there are resources available to help. It is difficult to talk about money problems and can be hard to put your situation into words when dealing with creditors. The MSU Extension website MI Money Health has many tips and sample letters to write creditors. Families must be honest about their situation and have a reasonable plan they can afford. Also, it is important to get any agreement in writing.

This article was published by Michigan State University Extension. For more information, visit https://extension.msu.edu. To have a digest of information delivered straight to your email inbox, visit https://extension.msu.edu/newsletters. To contact an expert in your area, visit https://extension.msu.edu/experts, or call 888-MSUE4MI (888-678-3464).

IRS Form 1099-C is an informational statement that reports the amount of and details about a debt that was canceled. You can expect to receive the form from any lender that has forgiven a balance you owe, no longer holding you liable for repaying it. You're required to include this canceled debt as income when you prepare your federal tax return for the year in which the debt was canceled.

What Is Form 1099-C?

A business extends money to you when you borrow, which might come in the form of a loan disbursement or a credit card purchase. In any case, you must enter into an agreement to pay that money back. It's not considered income, or subject to taxation, because you're not going to keep it.

The money becomes income and can be taxed when the lender cancels the agreement requiring you to repay it. Form 1099-C reports this income and various details regarding it, and you'll receive a copy. The IRS receives it as well, and the government expects you to include the income on your tax return.

Who Uses Form 1099-C?

The IRS requires that businesses send Forms 1099-C to consumers when the lender cancels or forgives more than $600 in debt. Businesses aren't required to tell you the tax implications of canceling or forgiving loans, but they're obligated to provide a 1099-C to you and to the IRS as well. You'll use it to correctly state the income on your tax return, and the IRS will include it in its file on you.

A lender might cancel your debt for any number of reasons, including:

• The statute of limitations for collection has expired.
• You've made a settlement agreement to pay part of the debt and have the other part canceled.
• The lender has a business policy of discontinuing collection activity after a certain period of time.

You'll have no more liability related to that particular debt after you've dealt with any taxes related to it.

What to Do if You Don’t Receive Form 1099-C

Reach out to the lender if you know you've had a loan canceled over the $600 limit, but you haven't received a 1099-C. The oversight could be due to a clerical error, or perhaps the lender doesn't have your current address.

Note

Don't make the mistake of omitting the income on your tax return simply because you didn't receive the form. That can result in penalties from the IRS.

It's also possible that you won't receive a 1099-C if the loan isn't considered to be reportable to the IRS. There are certain situations in which it can be canceled, but you don't have to report it as taxable income:

• There's no reporting requirement if the debt was discharged in bankruptcy unless it was incurred for business or investment purposes.
• The IRS will overlook forgiven student loans through the end of 2025. This change is part of the American Rescue Plan.
• Mortgages on a primary residence lost in foreclosure or sold in a short sale, or from a restructured mortgage fall into non-report status. You'll still need to include this forgiven debt on your tax return, but on IRS Form 982.

Your state's tax law for canceled debt might differ from federal tax law. Consult a tax professional, such as an accountant or attorney, to confirm your state's rules for reporting canceled accounts as taxable income.

Note

You might receive a Form 1099-A instead after a foreclosure event, or in addition to a Form 1099-C.

How to Read and Use Form 1099-C

The name and identifying information for the creditor who has forgiven your debt will appear in the upper left corner of the form. That section also reports the creditor's tax identification number, your Social Security number, your name, your address, and the account number of your forgiven loan.

The numbered boxes all pertain to your debt:

• Box 1 tells you the date when the debt was canceled.
• Box 2 cites the amount of debt that was forgiven.
• Box 3 reports any interest that might have been included in the figure in Box 2.
• Box 4 describes the debt in question.
• Box 5 states whether you were personally liable for repaying the debt.
• Box 6 is provided for a code that identifies why the debt was canceled.
• Box 7 provides the fair market value of any associated property if the loan was a mortgage, a car loan, or for any other single-item purchase.

Requirements for Form 1099-C

You don't have to submit the 1099-C with your tax return when you file it, because the IRS already has a copy. You should include it with your other financial documents when you go to your tax preparer, however.

Make sure your tax professional has experience with this type of income. You don't want this issue to come back to haunt you. Your tax return might be rejected if you fail to include the income, or the IRS might simply correct your return and adjust your refund or send you a bill for any additional amount that's due if you fail to include the income.

Note

You could face fines and other penalties if the income isn't reported, and any associated tax isn't paid on time.

You might also want to talk to a tax professional if you were insolvent at the time the debt was canceled, because you might not have to report the income. You were insolvent if your total liabilities were more than the fair market value of all your assets at the time. You had a negative net worth when the loan was canceled, so you can file IRS Form 982 to take an insolvency exclusion for canceled debt.

Key Takeaways

• IRS Form 1099-C reports a canceled debt to you and to the IRS when a lender forgives an outstanding loan you owe and no longer holds you responsible for paying it.
• The IRS takes the position that canceled debt is taxable income to you and must be reported on your tax return.
• Lenders must issue Form 1099-C when they forgive debts of more than $600.
• Some debts, such as most debt discharged in bankruptcy, aren’t reportable on Form 1099-C.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Internal Revenue Service. "Topic No. 431 Canceled Debt – Is It Taxable or Not?" Accessed Jan. 11, 2022

2. Internal Revenue Service. "2021 Instructions for Forms 1099-A and 1099-C," Pages 3-4. Accessed Jan. 11, 2022.

3. Internal Revenue Service. "Penalties." Accessed Jan. 11, 2022.

4. Internal Revenue Service. "2021 Instructions for Forms 1099-A and 1099-C," Pages 4-5. Accessed Jan. 11, 2022.

5. Congress.gov. "H.R. 1319," Pages182-183. Accessed Jan. 11, 2022.

6. Internal Revenue Service. "Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) 2020," Pages 5-7. Accessed Jan. 11, 2022.