Tax Form 1099-C For Reporting Cancelled Debt

When a lender cancels your debt, you may have to report this as taxable income on your federal income taxes, unless there is an exception. If you're required to report the cancelled debt, the lender will send IRS Form 1099-C to you.

Why Are Debts Cancelled?

The lender may cancel your debt for a number of reasons:

• The statute of limitations expired and the court entered a judgment to this fact.
• You've made an agreement with the lender to cancel the debt.
• The lender has a business policy of discontinuing collection activity after a certain period of time.

Tax Income Reporting Exclusions

There are certain situations in which your debt can be cancelled, but you don't have to report it as taxable income.

• The debt was discharged in bankruptcy (unless the debt was incurred for business or investment purposes).
• Student loans that are forgiven by an educational institution that's tax exempt and you work for a certain number of years for a qualified employer. (See IRS Publication 970, Chapter 5 for more information.)

State Law For Cancelled Debts

Your state's tax law for cancelled debts may differ from that of federal tax law. Consult a tax professional, e.g. an accountant or attorney, to confirm your state's tax law about reporting cancelled debts as taxable income.