Form 1099-C: Cancellation of Debt – A Complete Guide for 2019 Tax Returns

What Form 1099-C Is For

Form 1099-C, Cancellation of Debt, is an information return that lenders and creditors send to both you and the IRS when they forgive or cancel $600 or more of debt you owe. When a creditor officially forgives part or all of what you owe—whether it's credit card debt, a car loan after repossession, mortgage debt from a foreclosure, or other obligations—they typically must report this action using Form 1099-C.

Here’s the key concept: canceled debt is generally considered taxable income. If someone forgives $5,000 you owed them, the IRS treats that as if you received $5,000 in income, even though no money changed hands. The logic is straightforward: you received goods, services, or cash when you originally borrowed the money, and now you don’t have to pay it back—that’s an economic benefit.

The form comes from “applicable financial entities”, including banks, credit unions, federal agencies, credit card companies, finance companies, and any organization whose significant business involves lending money.
You’ll receive Copy B for your records, while the IRS receives Copy A.

Box 2: Canceled debt amount (usually just the principal)
Box 3: Any interest included in that amount
Box 6: A crucial code explaining why the debt was canceled (A–G), e.g. bankruptcy (Code A), foreclosure (Code D), or a lender’s policy decision (Code G).

When You’d Use It (Late or Amended Returns)

Original filing

If you received Form 1099-C during the 2019 tax year, you should have reported it on your original 2019 tax return (Form 1040), filed by April 15, 2020 (or October 15, 2020 if you filed an extension).

Late 1099-C

If you receive a 1099-C after you’ve already filed your 2019 return, you’ll likely need to file an amended return using Form 1040-X. This commonly happens because creditors sometimes issue these forms years after the actual debt cancellation. Generally, you have three years from the date you filed your original return (or two years from when you paid the tax, whichever is later) to file an amended return to claim a refund or make corrections.

Incorrect information

If you receive a 1099-C with wrong information—incorrect amount, wrong date, or debt you never actually owed (such as in identity theft cases)—first contact the creditor to request a corrected form. If they refuse, you should still report the amount on your tax return but attach an explanation detailing why the creditor’s information is incorrect. The IRS will consider your explanation during processing.

Important timing note

For 2019 returns filed early (before April 15, 2020), the three-year amendment window counts from the April deadline, not your actual filing date.
This gives you until April 15, 2023 to amend a 2019 return in most cases.

Key Rules or Details for 2019

$600 threshold

Creditors only had to issue Form 1099-C if they canceled $600 or more. However, even if you didn’t receive the form, you must still report canceled debt on your return.

Multiple debtors

If you and someone else (like a spouse or co-borrower) were jointly liable for a debt of $10,000 or more incurred after 1994, each person should receive a Form 1099-C showing the entire canceled amount.
This doesn’t mean you both owe taxes on the full amount—your actual taxable portion depends on state law, who received the loan proceeds, who claimed interest deductions, and which exclusions apply.

Reporting location

For 2019, canceled debt income was reported on:

Schedule 1 (Form 1040 or 1040-SR), line 8 for personal debts
Schedule C, line 6 for business debts
Schedule F, line 8 for farm debts
Schedule E, line 3 for rental property debts

Identifiable events

Creditors weren’t required to file Form 1099-C immediately when debt was canceled—they had to wait for an “identifiable event”, such as:

Bankruptcy discharge
Court judgment
Statute of limitations expiration
Foreclosure
Creditor’s decision to stop collection efforts

This explains why you might receive a 1099-C years after your last payment.

Bankruptcy exception

For 2019, creditors didn’t need to report debts discharged in bankruptcy unless their records showed the debt was incurred for business or investment purposes. However, taxpayers still needed to file Form 982 to exclude bankruptcy-discharged debts from income.

Student loan provision

Starting in 2018 and continuing through 2019, student loan debt discharged due to death or total and permanent disability was not taxable—a major benefit for affected borrowers.

Step-by-Step (High Level)

Step 1: Determine if the debt is actually taxable

Not all canceled debt must be reported as income.
Review the exceptions first, which include:

Gifts or inheritances
Amounts that would have been deductible if you’d paid them (like business expenses for cash-basis taxpayers)
Price reductions by the seller after purchase
Certain student loan programs

Step 2: Check if you qualify for an exclusion

If no exception applies, consider these exclusions (you may need to reduce “tax attributes” such as carryforwards or property basis):

Bankruptcy: Debt canceled in a Title 11 bankruptcy case
Insolvency: Liabilities exceeded assets immediately before cancellation (excludable only up to insolvency amount)
Qualified principal residence indebtedness: Mortgage debt forgiven on your main home between 2007–2020 (up to $2 million for 2019)
Qualified farm indebtedness
Qualified real property business indebtedness

Step 3: Calculate your insolvency (if applicable)

Use the Insolvency Worksheet in IRS Publication 4681.
If your liabilities exceeded assets by $8,000 and $5,000 of debt was canceled, the entire $5,000 is excluded.
If you were insolvent by $3,000 but had $5,000 canceled, only $3,000 is excluded—the remaining $2,000 is taxable.

Step 4: File Form 982 (if excluding income)

If you’re excluding canceled debt under any exclusion, you must attach Form 982 to your tax return.
Check the appropriate box (1a for bankruptcy, 1b for insolvency, etc.), enter the excluded amount on line 2, and complete Part II to reduce tax attributes.

Step 5: Report any remaining taxable amount

If part of the canceled debt doesn’t qualify for exclusion, report the taxable portion on your return—Schedule 1, line 8 for most personal debts.

Common Mistakes and How to Avoid Them

Mistake #1: Assuming all 1099-C debt is taxable

Reality: Many taxpayers report the full amount unnecessarily. Always check if you qualify for an exclusion first.

Mistake #2: Forgetting Form 982

Solution: Always attach Form 982 when excluding canceled debt; otherwise, the IRS will treat it as taxable.

Mistake #3: Incorrectly calculating insolvency

Solution: Use Publication 4681’s worksheet. Include all assets (including retirement accounts) and liabilities as of right before cancellation.

Mistake #4: Not verifying 1099-C accuracy

Solution: Compare the form against your records. Request corrections or attach an explanatory statement if incorrect.

Mistake #5: Double-counting with joint debts

Solution: Determine your share based on who used the loan or who is liable, and report only your portion.

Mistake #6: Ignoring nonrecourse debt rules

Solution: Understand recourse vs. nonrecourse rules—foreclosures on nonrecourse loans generally don’t generate cancellation of debt income.

Mistake #7: Missing the qualified principal residence exclusion deadline

Solution: For 2019, mortgage debt discharged before January 1, 2021 could still qualify for exclusion—verify eligibility.

What Happens After You File

IRS matching

The IRS receives the same Form 1099-C that you do. Their systems automatically match reported income against your return.
If you fail to report it or omit Form 982, expect a CP2000 notice proposing additional tax and penalties.

Processing timeline

If you correctly reported or excluded the debt, your return should process normally:

E-filed: ~21 days
Paper: 6–8 weeks
Amended (Form 1040-X): up to 16+ weeks

Attribute reduction consequences

If you excluded canceled debt using Form 982, you must reduce tax attributes in a specific order:

Net operating losses
General business credits
Minimum tax credits
Capital loss carryovers
Basis in property
Passive activity loss and credit carryovers
Foreign tax credit carryovers

These reductions may affect future years but not the current tax year.

Future implications

Keep documentation for at least three years (or longer if large exclusions apply):

Form 1099-C
Insolvency worksheets and backup
Bankruptcy discharge paperwork
Property appraisals
Correspondence with creditors

Collection rights

Receiving a Form 1099-C doesn’t always mean the creditor can’t collect. Some issue it prematurely.
If the debt was discharged in bankruptcy, collection is barred. Otherwise, check state statutes of limitations for debt collection.

State tax considerations

States vary—some follow federal exclusions, others don’t.
Always review your state Department of Revenue guidance for 2019.

FAQs

Q1: If I receive a 1099-C, do I still owe the debt?

Not necessarily. Some creditors issue the form for accounting purposes but still pursue collection.
If discharged in bankruptcy, it’s legally uncollectible. Otherwise, verify under state law.

Q2: I was insolvent when my debt was canceled. Do I still owe taxes?

Likely not—use the Insolvency Worksheet (Publication 4681) and file Form 982 to exclude up to the insolvency amount.

Q3: Can I dispute a 1099-C I believe is incorrect?

Yes. Request a corrected form or attach an explanatory statement when filing. Never ignore the form entirely.

Q4: I received a 1099-C for debt from years ago. Is it too late for the IRS to tax me?

You report it in the year of actual cancellation (Box 1 date). If the creditor reported the wrong year, dispute it.
The IRS has three years to assess additional tax, longer if income was substantially understated.

Q5: My mortgage was modified under HAMP. Is the principal reduction taxable?

Generally, no. HAMP Pay-for-Performance and PRA payments were not taxable. Other mortgage reductions may qualify for the qualified principal residence exclusion.

Q6: What if both spouses receive a 1099-C showing the full amount of canceled joint debt?

Report it once on a joint return. On separate returns, divide based on responsibility and ownership.

Q7: I filed bankruptcy and received a 1099-C. Do I need to report this?

You must file Form 982 but do not include the canceled amount in taxable income. Check Box 1a and enter the excluded amount on line 2.

Additional Resources

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