What is Form 1099-C?
Form 1099-C, Cancellation of Debt, is an Internal Revenue Service form used to record a cancellation or relief of debt. It reports different payment transactions made by a creditor or lender to a taxpayer, including personal or students loans and real estate mortgages.
Any forgiven or canceled debt will be considered as income by the IRS. This means that the forgiven or canceled debt must be included in your tax return, and be taxed as your income. Once you report this income and other details like the principal amount’s interest, penalties, or administrative costs, the government expects you to pay this when you prepare your federal tax return for the year your debt was canceled or forgiven.
Creditors and lenders are required to file a Form 1099-C with the IRS if they will cancel a debt that amounts to $600 or higher. The consumers who received the form must indicate the amount as other income in their tax returns. The said amount must also be reported even if the debt was less than $600 and the creditor did not send out an IRS 1099c Form.
A lender or creditor may cancel your debt for the following reasons:
- The statute of limitations for the collection of debt has lapsed or expired
- There is a settlement agreement that the debtor will pay a part of the debt and request to have the other part canceled
- The lender or creditor has a business policy to discontinue the collection of debt after a certain period
- Repossession of property
- Abandonment of property
- Modification of loan on your primary residence
- Resolving credit card debt
If the debt is a nontaxable business debt, the copy of the 1099C Form shall be used to report as other income on Schedule 1 of Form 1040, U.S. Individual Income Tax Return.
There would also be instances that you won’t be able to receive a Form 1099 C if the loan is not reportable as income to the IRS. Such instances can be the following reasons:
- If the debt was discharged due to bankruptcy unless it was incurred for investment or business purposes, reporting of the amount is not required.
- Forgiven student loans will be overlooked by the IRS until 2025 as it is part of the American Rescue Plan.
- Mortgages on primary residences that are restructured or lost in a foreclosure sold in short sales are considered under the non-report status. Forgiven debts on mortgages must, however, be included on your tax return on IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.
How to fill out Form 1099-C?
The IRS 1099c Form consists of six pages with three copies, namely Copy A, Copy B, and Copy C. The form requires you to fill out the personal information of the creditor and the debtor. The left side of the column has all the details of the creditor and the debtor, and this section is to be filled out by the creditor or lender. The right side of the form has seven itemized boxes about the debt.
Note that the instructions listed are applicable to all copies of the form.
Creditor’s name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.
Enter your full name, complete address, and your telephone number on the boxes.
Enter the creditor’s or lender’s Tax Identification Number.
Enter the debtor’s Tax Identification Number.
Enter the debtor’s full legal name.
Street Address (including apt. no.)
Enter the street address of the debtor. If their address has an apartment number, include it in this section.
City or town, state or province, country, and ZIP or foreign postal code
Enter the city or town, state or province, country, and postal code of the debtor.
Enter the account number of the debtor. In this section, it may be a Social Security account the debtor has or any account assigned by the creditor.
Item 1 - Date of Identifiable Event
Enter the earliest identifiable date when the debt was discharged.
Item 2 - Amount of Debt Discharged
Enter the amount of the debt actually or deemed discharged.
Item 3 - Interest, if included in Box 2
Enter the interest included in the amount reported in Item 2, if any.
Item 4 - Debt Description
Enter the description of the debt discharged to the debtor.
Item 5 - Check here if the debtor was personally liable for the repayment of the debt
Check the box if the debtor is personally liable for the repayment of debt when the debt was made or modified.
Item 6 - Identifiable event code
Enter the event code that shows the reason why the creditor filed the form. The event codes are found and explained more in detail under Pub. 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Enter the appropriate event code:
A - Bankruptcy
B - Other judicial debt relief
C - Statute of limitations or expiration of deficiency period
D - Foreclosure election
E - Debt relief from probate or similar proceeding
F - By agreement
G - Decision or policy to discontinue collection
H - Other actual discharge before identifiable event
Item 7 - Fair market value of property
Enter the fair market value of the property, if the loan was a car loan, mortgage, or other single-item purchase.
How to file Form 1099-C?
As mentioned, Form 1099 C has three copies filed with the following:
- Copy A - The creditor or lender must submit Copy A of Form 1099-C to the Internal Revenue Service Center.
- Copy B - The creditor or lender must provide Copy B of Form 1099-C to the debtor.
- Copy C - The creditor retains Copy C of Form 1099-C.
In completing the form, you must comply with the 2021 General Instructions for Certain Information Returns and the 2021 Instructions for Forms 1099-A and 1099-C.
You don’t have to submit the 1099-C Form along with your tax return upon filing as the IRS already has a copy of the form. However, you must bring other relevant financial documents upon going to your tax preparer.
For the lender, Copy A may be filed personally or electronically. If the lender or creditor is filing personally, it must submit the 1099C form with the IRS by February 28, 2022. But if it will be filed electronically, you must file it on or before March 31, 2022.
In the electronic filing of Form 1099-C Copy A, the IRS does not provide a fill-in option for it. It’s essential to have software that generates a file following Pub. 1220, Specifications for Electronic Filing of Forms.
Copy B must be furnished to the debtor on or before January 31, 2022.