Form 1099-C or Cancellation of Debt
You most likely received Form 1099-C because a lender (e.g. government agency or credit agency) has canceled, discharged or forgiven a debt of $600 or more that you previously owed. In most cases, if a creditor has cancelled or forgiven your debt, you are required to report the cancelled debt amount on your income tax return, even if it is less than $600. A copy of Form 1099-C is also sent to the IRS.
Generally, as of tax year 2022, cancellation of debt—see Box 2 of Form 1099—is reported on 1040, Schedule 1, Line 8c.
Debt Forgiveness Reporting Exclusions, Exceptions
There are cases, however, when cancellation of debt should be reported elsewhere, or not reported at all (e.g. bankruptcy and insolvency might not require you to report cancellation of debt, or you may be exempt from reporting the cancellation of debt). See our detailed overview of IRS Publication 4681 regarding Canceled Debts, Foreclosures, Repossessions and Abandonments.
Debt Exclusions from Gross Income
- The debt was discharged as a result of bankruptcy, e.g. Chapter 11
- The debt was qualified as farm indebtedness
- The debt canceled to the extent the taxpayer was insolvent immediately before the cancellation
- Cancellation of qualified real property business indebtedness
- Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2026
If you are excluding income due to indebtedness reported on 1099-C, you may also want to complete Form 982.
Cancellation of Debt Income Exceptions
- Debt Forgiveness for certain federal, private or educational student loans under the provision that the loans would be canceled if the debtor worked for a certain period of time in a certain profession
- Certain student loan discharges after December 31, 2020, and before January 1, 2026, and a number of other education loan repayment or loan forgiveness programs to help provide health services in certain areas
- Amounts canceled as inheritance, gifts, etc.
- A qualified home/property purchase price reduction given by the seller of property to the buyer
File Form 982 to report the exclusion of income or cancellation of debt, including basis reduction for property.
Generally, if an identifiable event has occurred but the debt was not actually cancelled or forgiven, then include the cancelled debt amount on your income tax return in the year that it is actually discharged, unless an exception or exclusion applies to you in that year.
You might also be able to exclude the cancellation of debt from income under the insolvency exclusion (e.g. you are insolvent immediately before the debt is cancelled) if the following apply:
- The home you own is used as your main home and the debt was secured by your home
- The debt is acquisition indebtedness is debt incurred to buy, build, or improve the home
Learn more about Cancellation of Debt for tax year 2022 or search publications and forms for other tax years.
The eFile Tax App will guide you through the process on where to enter the amount reported on Box 2, and the app will then report the amount on your tax return.
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