What Form 1099-C (2025) Is For
IRS Form 1099-C (2025) is a tax form issued by a financial institution, lender, or creditor to report canceled debt of $600 or more. The Internal Revenue Service treats most forgiven debt as taxable income because it provides a financial benefit to the borrower. Common examples include credit card balances, personal loans, or mortgage debt forgiven after foreclosure or short sales. The form helps taxpayers and the IRS accurately track debt forgiveness and its potential tax impact on the annual tax return.
Form 1099-C also applies to student loan forgiveness, qualified farm indebtedness, and certain debts canceled through bankruptcy court or debt relief programs. Understanding this form enables taxpayers to determine whether the forgiven amount should be included in gross income or excluded under specific provisions, such as qualified principal residence indebtedness or insolvency rules.
When You’d Use Form 1099-C
Taxpayers use Form 1099-C when reporting income from canceled debts, such as forgiven mortgage debt or settled credit card balances. The lender sends the form to both the borrower and the IRS after a debt cancellation event, usually in January or February following the tax year. Taxpayers must review and include the forgiven amount on their federal tax return as other income unless an exclusion applies.
If an incorrect Form 1099-C is received, contact the creditor immediately for correction. In certain circumstances, taxpayers may need to amend their return if the form arrives after filing. Correctly reporting debt cancellation ensures compliance with IRS rules and prevents extra taxes or notices.
Key Rules or Details for 2025
For the 2025 tax year, creditors must issue a Form 1099-C when $600 or more of debt is canceled. This includes credit card debt, personal loans, and mortgage deficiencies. Certain identifiable events trigger reporting, such as bankruptcy discharge, foreclosure, settlement agreement, or the expiration of the statute of limitations.
Expiring Exclusions
Two key temporary exclusions are set to expire on December 31, 2025:
- The exclusion for qualified principal residence indebtedness allows taxpayers to exclude forgiven mortgage debt on their primary home from taxable income.
- The exclusion for certain qualified student loans, including federal student loans, is forgiven under public service programs.
If Congress does not extend these exclusions, future canceled mortgage debt and student loan forgiveness amounts may become fully taxable income.
Reporting and Interest Rules
Creditors are not required to include interest in the forgiven amount, but if they do, the interest must be reported separately on the form. Each borrower listed as personally liable for the debt may receive a separate form showing the full amount canceled.
Step-by-Step (High Level)
Taxpayers can follow these general steps to handle a Form 1099-C correctly:
- Receive and review the form.
Review all details for accuracy, including the cancellation date, amount, and type of debt. - Confirm that the debt was truly canceled.
Sometimes, creditors send the form for accounting reasons even if collection continues. - Determine if an exclusion applies.
Exclusions may include bankruptcy, insolvency, qualified principal residence indebtedness, qualified farm indebtedness, or certain qualified student loans. - Complete Form 982.
Use this form to exclude canceled debt and reduce tax attributes when applicable. - Report on your tax return.
Include the taxable amount as other income on Schedule 1 (Form 1040) if no exclusion applies. - Keep documentation.
Maintain records, including loan agreements, settlement letters, and insolvency calculations, for a minimum of four years.
Using tax preparation software can simplify this process, especially for taxpayers managing multiple forms or exclusions.
Common Mistakes and How to Avoid Them
- Treating all canceled debt as taxable: Many taxpayers assume all canceled debt must be included as income. In reality, several exclusions may reduce or eliminate the taxable amount, particularly for insolvent taxpayers or those qualifying for relief under the American Rescue Plan.
- Confusing charge-offs with confirmed cancellations: A charge-off is an accounting action, not forgiveness of debt. If a lender has not officially canceled the obligation, the debt still exists and remains legally enforceable.
- Ignoring incorrect information: Failing to correct errors on Form 1099-C can result in the IRS assessing taxes on inaccurate amounts. Taxpayers should contact the creditor for corrections or include an explanatory statement if the form cannot be revised before filing.
- Omitting Form 982: When an exclusion applies, Form 982 must be filed to document the reduction in taxable income. Without it, the IRS assumes the canceled debt is fully taxable.
- Overlooking property-related debt: When foreclosure or repossession occurs, taxpayers may also receive Form 1099-A. Both forms should be reviewed to determine the correct gain or loss and the property’s fair market value.
Avoiding these errors ensures accurate reporting of canceled debt income and reduces the risk of IRS notices, audits, or penalties.
What Happens After You File
After filing a tax return, the IRS automatically matches Form 1099-C to the taxpayer’s Social Security number to verify that canceled debts are correctly reported. If the forgiven debt is omitted, the IRS may issue a CP2000 notice proposing additional taxes or penalties. Keeping detailed records helps verify exclusions or corrections if needed.
If the forgiven amount is excluded through insolvency, bankruptcy, or qualified principal residence indebtedness, taxpayers must file Form 982. State tax laws may vary, so it's essential to check local requirements or use reliable tax preparation software to ensure accuracy. Proper handling of Form 1099-C helps avoid disputes and ensures compliance with IRS debt forgiveness reporting.
FAQs
What is IRS Form 1099-C (2025) used for?
IRS Form 1099-C (2025) reports canceled debt of $600 or more to the Internal Revenue Service. When a lender forgives or cancels a debt, the forgiven amount may be considered taxable income that must be reported on a taxpayer’s return.
Is forgiven debt always considered taxable income?
In most cases, forgiven debt is considered taxable income because the IRS assumes you benefited from not repaying borrowed money. However, under certain circumstances, such as bankruptcy or insolvency, taxpayers may be able to exclude canceled debt from their gross income by using Form 982.
How does student loan forgiveness affect taxes?
Student loan forgiveness through federal student aid or public service loan forgiveness programs may not be taxable income until 2026, according to the American Rescue Plan. Certain qualified student loans can be excluded from tax reporting if adequately documented on your return.
Can mortgage debt forgiveness be excluded from taxes?
Mortgage debt forgiven on a qualified principal residence may be excluded from taxable income through 2025. This exclusion applies to mortgage debt used to buy, build, or substantially improve a primary home when properly reported on your tax form.
What should you do if your Form 1099-C shows incorrect information?
If a Form 1099-C contains incorrect information about the forgiven amount, canceled date, or lender details, contact the financial institution immediately. Report accurate figures on your tax return and attach an explanation to avoid extra taxes or IRS penalties.
