Form 1099-C – Taxable Income, Exclusions, and How to Report

Picture this, you open the mail, see Form 1099‑C, and your stomach drops. A lender canceled part of your debt, great, but the IRS may treat that canceled amount like income. The good news, you can handle this in a calm, methodical way. You will check the form, decide if any exclusions apply, then report it correctly so you do not invite a notice later. We will walk through it together, step by step.

Key Takeaways

• Canceled debt of 600 or more is usually taxable. Lenders must send Form 1099‑C to you and to the IRS after an identifiable event such as bankruptcy, settlement, or a foreclosure‑related action.
• Read four boxes first, Box 1 event date, Box 2 amount discharged, Box 3 interest included, Box 6 identifiable event code A through H.
• If the debt involved property and the creditor filed only 1099‑C, Boxes 4, 5, and 7 on the 1099‑C carry the property details, personal liability flag, and the property’s fair market value. This can replace a separate 1099‑A for that year.
• Most people report nonbusiness canceled debt on Schedule 1 of Form 1040. For tax year 2024, the line labeled Cancellation of debt is line 8c. Use Form 982 if you qualify for an exclusion such as bankruptcy, insolvency, or qualified principal residence debt.
• Mortgage forgiveness for your main home can be excluded if the discharge happens before January 1, 2026, or is under a written agreement in place before that date, subject to the 750,000, 375,000 MFS, cap.
  Download Form 1099-C PDF

What is Form 1099‑C

Form 1099‑C, Cancellation of Debt, is an information return creditors file when they cancel 600 or more of a debt you owed. You receive a copy so you can mirror what the IRS sees. The creditor must file the form when an identifiable event occurs, for example a bankruptcy discharge, a court order that wipes out collection rights, a foreclosure election that ends collection rights under local law, a negotiated settlement for less than full balance, or a policy decision to stop collection. These are coded A through H in Box 6.

How to read the boxes that matter

• Box 1, Date of identifiable event. This sets the tax year you consider the income or the exclusion.
• Box 2, Amount of debt discharged. This is the canceled amount. It cannot exceed the total debt net of any amounts the creditor recovered through a sale or settlement.
• Box 3, Interest, if included in Box 2. If the creditor included forgiven interest in Box 2, they should also list it in Box 3.
• Box 4, Debt description. Tells you what the debt was, for example credit card, auto, student loan, mortgage.
• Box 5, Debtor personally liable, checkbox. If checked, you were personally liable. That matters for foreclosure tax math.
• Box 6, Identifiable event code. One letter, A through H, matching the event list in the instructions.
• Box 7, Fair market value of property. Completed if the 1099‑C is being used to cover the 1099‑A role for a property event.

The Box 6 codes, in plain words

• A, bankruptcy under Title 11.
• B, debt wiped out by a court process such as receivership or foreclosure action.
• C, statute of limitations or similar deadline expired with a final court decision.
• D, lender used foreclosure remedies that end further collection under local law.
• E, probate or similar proceeding made the debt unenforceable.
• F, agreement to settle for less than full amount, for example a short sale.
• G, creditor’s policy decision to stop collection and cancel the debt.
• H, an actual discharge before the above identifiable events.

Is canceled debt taxable

Generally yes, canceled debt is income. The IRS treats debt you no longer have to pay as a benefit, so it often increases taxable income. Most nonbusiness canceled debt belongs on Schedule 1, and for 2024 the IRS labels cancellation of debt on line 8c. If this is business debt, it usually shows on your business schedule instead. For sole proprietors that is typically Schedule C.

Important, exclusions exist

You may qualify to exclude some or all of the canceled amount if you were in a Title 11 bankruptcy, were insolvent immediately before the cancellation, or if the forgiven amount was qualified principal residence indebtedness within the current law window through December 31, 2025, including agreements in place by that date, capped at 750,000, 375,000 MFS. You claim exclusions on Form 982 and you reduce tax attributes as required.

Blockquote You will not guess your way through this. Check the boxes, test the exclusions with real numbers, then file Form 982 if you qualify. Keep the paper trail.

How to decide what to report, a simple workflow that works

Step 1, confirm the facts on the 1099‑C

• Match your name and TIN to what the creditor reported.
• Confirm Box 1 date and Box 6 code reflect what actually happened, bankruptcy, settlement, foreclosure election, policy charge‑off.
• Tie Box 2 to the creditor ledger, principal plus any included interest or fees, net of payments or sale proceeds.
• If property is involved and there is no separate 1099‑A, confirm that Boxes 4, 5, and 7 on the 1099‑C capture property description, personal liability status, and fair market value. Ask for a correction if anything is off.

Step 2, decide if any exclusion applies

• Bankruptcy. If your discharge happened in a Title 11 case, the canceled amount is excluded. You still complete Form 982 to show the exclusion and the required attribute reductions.
• Insolvency. If your total liabilities exceeded your total asset fair market value immediately before the event, you can exclude up to that shortfall. Use the insolvency worksheet in Publication 4681 and keep the worksheet with your files. You still complete Form 982.
• Qualified principal residence indebtedness. For main home debt used to buy, build, or substantially improve the home, you may exclude forgiven amounts if the discharge occurs before January 1, 2026, or is under a written agreement in place before that date. The cap is 750,000, 375,000 MFS. This exclusion requires basis adjustments and Form 982.
• Other specific categories. Qualified farm indebtedness and qualified real property business indebtedness have narrow rules and sequencing with other exclusions. See Publication 4681 and Form 982 instructions.

Step 3, report it in the right place

For nonbusiness canceled debt that remains taxable after exclusions, use Schedule 1. For 2024, the IRS labels cancellation of debt on line 8c. Business debt usually belongs on the business schedule, for example Schedule C for sole proprietors, or Schedule F for farmers.

If there was a property foreclosure or abandonment, you may also need to compute gain or loss from the property disposition. Publication 4681 explains when you have ordinary income from cancellation and when you have a separate gain or loss from the property.

1099‑C, 1099‑A, and property math, what changes if a home or car was involved

When a lender forecloses, repossesses, or you do a deed in lieu, there are two possible tax pieces. First, there can be cancellation of debt income if the lender forgives an unpaid balance. Second, there can be gain or loss from giving up the property. For secured nonrecourse loans, the amount of the debt satisfied is generally treated as the amount realized, while for recourse loans the split between cancellation income and sale gain or loss depends on the fair market value and the personal liability flag. Publication 4681 walks through examples and how to report each piece.

If your creditor uses Form 1099‑C to meet both filings in the same year, they complete Boxes 4, 5, and 7 on 1099‑C and are not required to send a separate 1099‑A. If they send both forms, Boxes 4, 5, and 7 on the 1099‑C should not be completed. This coordination rule helps you avoid double counting.

Reading Box 6 codes during property cases

• D often shows up when the lender uses a foreclosure remedy that, under local law, ends further collection, common in certain nonjudicial states.
• F is common in short sales and negotiated settlements for less than the full balance. Use the code to anchor your reporting year and to choose the right worksheet in Publication 4681.

Real‑world checklist I use before I file

• Gather lender statements, the payoff history, and any settlement agreement.
• If property was involved, collect the foreclosure bid or appraisal used to set fair market value.
• Complete the insolvency worksheet if you suspect you were insolvent. Save dated screenshots of bank and brokerage balances, loan statements, and valuation printouts for that day.
• Fill out Form 982 when you claim an exclusion. Mark the box that matches your exclusion, enter the excluded amount on line 2, then complete the Part II attribute reductions.
• If any details on the 1099‑C are wrong, request a corrected form in writing and keep the correspondence. The IRS sees what the creditor filed.

The major exclusions, explained with practical tips

Bankruptcy exclusion

If your discharge happened in a Title 11 bankruptcy case, the canceled amount is not income. You still file Form 982, check line 1a, enter the excluded amount on line 2, and complete Part II to reduce tax attributes in the required order. Keep the court order with your tax records. The instructions detail the attribute reduction sequence and the option to elect basis reduction of depreciable property first.

Insolvency exclusion

You were insolvent if your total liabilities exceeded the fair market value of your total assets immediately before the cancellation. You can exclude canceled debt up to that shortfall. Use the Publication 4681 insolvency worksheet, document each figure, and remember that values are as of the moment before the event. File Form 982, check line 1b, enter the excluded amount on line 2, and reduce tax attributes in Part II. If only part is excluded, the remainder is taxable income.

Qualified principal residence indebtedness

If the canceled amount relates to your main home and the loan proceeds were used to buy, build, or substantially improve that home, you may be able to exclude it. Current guidance allows exclusion for discharges before January 1, 2026, or for discharges under a written agreement in place before January 1, 2026. The maximum treated as qualified principal residence debt is 750,000, 375,000 MFS. Form 982 is required, and if you keep the home, you must reduce your home’s basis by the excluded amount, line 10b. Pub. 523 and Pub. 4681 explain basis and home‑sale rules.

Other specialized categories

• Qualified farm indebtedness. Available if at least half of your prior three years of gross receipts were from farming and other limits apply. Sequence with insolvency rules as shown in Publication 4681 examples.
• Qualified real property business indebtedness. Available in limited business real estate cases. Review Form 982 instructions and consider the basis reduction election.
• Purchase price adjustment with the seller. Not income, usually a basis reduction. See Publication 334 for small business, general rule and exceptions.
• Certain student loans forgiven for service or death or disability under specific statutes. Check Publication 4681 for current treatment.

Reporting, line by line clarity you can trust

For individuals, nonbusiness debt

Use Schedule 1, Form 1040. For tax year 2024, cancellation of debt is line 8c. If a portion is excluded on Form 982, only include the taxable remainder. Keep the 1099‑C and your Form 982 with documentation.

For business owners

If the debt ties to your sole proprietorship, it generally goes on Schedule C. Farmers use Schedule F. Partnerships and S corporations report at the entity level and pass through to owners. Review the business schedule instructions and consider basis and attribute interactions.

Property foreclosures and repossessions

You may have both cancellation income and a gain or loss from the property disposition. Publication 4681 explains when the amount realized equals the debt and when you split the calculation between fair market value and canceled balance based on whether you were personally liable. 

Blockquote If the creditor filed only a 1099‑C for the foreclosure year and completed Boxes 4, 5, and 7, do not expect a separate 1099‑A for that same debt. The 1099‑C is doing double duty.

Accuracy checks that prevent IRS mismatch letters

• Compare creditor name, EIN, and account number to your statements. If you had multiple loans or a servicer change, make sure the right loan is tied to the right TIN. Ask for a corrected 1099‑C if needed.
• Verify Box 2 against the payoff ledger, and confirm whether forgiven interest was included and shown in Box 3 as required if included.
• Confirm Box 1 date and Box 6 code. The year and code drive your filing period and which exclusion you can claim.
• If property is involved, double check Box 7 fair market value against the foreclosure bid or appraisal used.

State conformity, timing, and practical housekeeping

• Some states do not follow every federal exclusion. After you finish the federal return and Form 982, check your state instructions for cancellation of debt and mortgage forgiveness rules for the year in question. Use your state’s Schedule 1 equivalent if required. For mortgage forgiveness, federal law allows exclusions for discharges before January 1, 2026, or under agreements in place by that date. States may differ.
• Keep a clean file. Save the 1099‑C, settlement letters, foreclosure records, insolvency worksheet, bank and brokerage balances for the event date, and a copy of your filed Form 982. Publication 4681 is your anchor reference.

Step‑by‑step, how to report a 1099‑C

• Confirm the form’s details and request corrections if needed.
• Test bankruptcy, insolvency, and principal residence rules. If any apply, complete Form 982 and compute attribute reductions.
• Report any remaining taxable amount, for 2024, Schedule 1 line 8c for nonbusiness debt, business debt on the business schedule.
• If there was a foreclosure or repossession, compute gain or loss from the property disposition using Publication 4681’s guidance.

Common questions, fast answers

What is Form 1099‑C used for It reports that a creditor canceled 600 or more of your debt after a specific event. 

You use it to decide whether the amount is taxable, to claim any exclusion on Form 982, and to file your return with the same facts the IRS has on file.

How does a 1099‑C affect my refund Canceled debt usually increases taxable income, which can reduce a refund or increase tax due.

If you qualify for bankruptcy, insolvency, or main home mortgage exclusions, you can remove some or all of it by filing Form 982. Document everything so your return matches the IRS data.

Do I have to pay tax on canceled debt Usually yes, unless you qualify for an exclusion. 

• The most common are bankruptcy, insolvency, and qualified principal residence indebtedness for discharges before January 1, 2026, within the 750,000 cap, 375,000 MFS. You claim the exclusion on Form 982.
• Where do I report a 1099‑C on my return For 2024 individual returns, use Schedule 1 line 8c for nonbusiness amounts, business debt on your business schedule. If property was taken, compute gain or loss from the property disposition as explained in Publication 4681. Attach Form 982 if you claim an exclusion.
• What if the creditor sent only a 1099‑C for my foreclosure That is allowed. If they canceled the debt and foreclosed in the same year, they can file only 1099‑C and complete Boxes 4, 5, and 7 to satisfy the 1099‑A requirement. Use those boxes for your property calculations.

Tools and sources you can trust

• IRS Instructions for Forms 1099‑A and 1099‑C, updated April 2025, give the official box definitions, codes, and the one‑form coordination rule.
• Publication 4681 explains canceled debts, insolvency, foreclosures, and how to report. It includes the insolvency worksheet.
• Form 982 and its instructions spell out the exclusions, limits for principal residence debt through 2025, and how to reduce tax attributes.
• Publication 17 and the 2024 Schedule 1 instructions show where cancellation of debt appears on individual returns.