Form 1099-C: Cancellation of Debt (2022) – A Complete Guide

When a creditor cancels or forgives $600 or more of debt you owe, you'll likely receive Form 1099-C—and the IRS treats that forgiven amount as taxable income in most cases. This guide walks you through what Form 1099-C means, when and how to handle it, key rules for 2022, common pitfalls, and what happens after you report it on your tax return.

What Form 1099-C Is For

Form 1099-C, Cancellation of Debt, is an information return that creditors send to both you and the IRS when they cancel, discharge, or forgive $600 or more of debt you owed. The form reports the amount of canceled debt and the date it was canceled. According to the IRS, nearly any forgiven debt becomes taxable income—meaning you must report it on your federal tax return as if you received that money as income. IRS.gov

Creditors required to file Form 1099-C include banks, credit unions, credit card companies, mortgage lenders, federal government agencies, and any organization whose significant business involves lending money. Even if the canceled debt is less than $600, you may still be required to report it as income, though the creditor isn't obligated to send you a Form 1099-C in that case. IRS.gov

The form covers various types of canceled debt—from credit card balances and personal loans to mortgages, student loans, and business debts. It includes both the principal amount and, optionally, any interest the creditor chooses to report separately.

When You’d Use Form 1099-C (Including Late or Amended Forms)

Typical Timeline

Creditors must send Form 1099-C to you by January 31 of the year following the year the debt was canceled. For example, if your debt was canceled in 2022, you should receive the form by January 31, 2023. The creditor must file the same information with the IRS by that deadline (or March 31 if filing electronically). IRS.gov

Late or Corrected Forms

Sometimes you might receive a Form 1099-C months or even years after the debt was actually canceled. Creditors may issue corrected or late forms if they discover errors or if an "identifiable event" (such as the statute of limitations expiring) occurs later. If you receive a late Form 1099-C for a prior tax year, you may need to file an amended return (Form 1040-X) to report the canceled debt income for the correct year—unless you qualify for an exclusion or exception (explained below). If you believe the information on the form is wrong, contact the lender to correct it. Your responsibility to report the correct taxable amount of canceled debt as income on your tax return for the year in which the cancellation occurred remains, regardless of the accuracy of the Form 1099-C you received. IRS.gov

Amended Returns

If you've already filed your 2022 return and later receive a 1099-C showing canceled debt from 2022, you should amend your return using Form 1040-X. You may owe additional tax, interest, and potentially penalties if the canceled debt is taxable and wasn't reported.

Key Rules or Details for 2022

Taxable Income Rule

Canceled debt is generally taxable income. In general, you must report any taxable amount of a canceled debt as ordinary income on Form 1040, U.S. Individual Income Tax Return, Form 1040-SR, U.S. Tax Return for Seniors or Form 1040-NR, U.S. Nonresident Alien Income Tax Return (attach Schedule 1 (Form 1040), Additional Income and Adjustments to Income) if the debt is a nonbusiness debt, or on an applicable schedule if the debt is a business debt. IRS.gov

$600 Reporting Threshold

Creditors must file Form 1099-C when they cancel $600 or more of debt, but your obligation to report canceled debt as income applies even if the amount is less than $600 or you don't receive the form. IRS.gov

Identifiable Events

Debt is considered "canceled" when an "identifiable event" occurs, including:

Discharge in bankruptcy (Code A in Box 6)
Cancellation in a court proceeding like foreclosure (Code B)
Statute of limitations expiration (Code C)
Foreclosure remedy that bars debt collection (Code D)
Discharge in probate (Code E)
Agreement to cancel at less than full amount (Code F)
Creditor's policy decision to discontinue collection (Code G)
Other actual discharge (Code H)

The form reports the date the identifiable event occurred (Box 1), which determines which tax year you must report the income. IRS.gov

Recourse vs. Nonrecourse Debt

If property securing a debt is repossessed or foreclosed:

Recourse debt (you're personally liable): You have both cancellation of debt income AND potential gain/loss on the property disposition
Nonrecourse debt (you're not personally liable): You only have gain/loss on disposition; no cancellation of debt income IRS.gov

Step-by-Step (High Level)

Step 1: Review the Form

Check all the information on Form 1099-C for accuracy: the canceled amount (Box 2), date (Box 1), interest (Box 3), debt description (Box 4), whether you were personally liable (Box 5), the identifiable event code (Box 6), and fair market value of any property (Box 7). If anything looks wrong, contact the creditor immediately. If the creditor won't correct the form, report the amount on your tax return but include an explanation as to why the creditor's information is incorrect. IRS.gov

Step 2: Determine If You Must Report It

Ask yourself: Does an exception or exclusion apply to my situation? Review the list of exceptions (amounts canceled as gifts, bequests, devises, or inheritances; certain qualified student loans; amounts that would be deductible if paid; qualified purchase price reductions) and exclusions (bankruptcy, insolvency, qualified farm debt, qualified real property business debt, qualified principal residence debt). Most people fall into the bankruptcy or insolvency exclusions. IRS.gov

Step 3: Calculate Your Exclusion (If Applicable)

If you were insolvent (your total debts exceeded your total assets) immediately before the debt was canceled, you can exclude some or all of the canceled debt from income. Calculate your insolvency by listing all liabilities and assets at the time of cancellation. You can exclude the canceled debt up to the amount you were insolvent. IRS.gov

Step 4: Complete Form 982 (If Excluding Income)

If you qualify for any exclusion, you must file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, with your tax return. Check the appropriate box (bankruptcy, insolvency, qualified farm, etc.), enter the excluded amount, and reduce certain "tax attributes" (like basis in property or net operating losses) as required by the instructions. Failing to file Form 982 when required can result in the IRS treating the entire canceled debt as taxable. IRS.gov

Step 5: Report on Your Tax Return

If the debt is fully taxable: Report the amount from Box 2 on Schedule 1 (Form 1040), Additional Income and Adjustments to Income
If you're excluding all or part: File Form 982 to claim your exclusion and report only the taxable portion (if any) on Schedule 1

Step 6: Keep Records

Retain copies of Form 1099-C, Form 982, your insolvency calculation worksheet, and any supporting documents. If you are required to file Form 1099-C, you must retain a copy of that form or be able to reconstruct the data for at least 4 years from the due date of the return. IRS.gov

Common Mistakes and How to Avoid Them

Mistake 1: Ignoring the Form 1099-C

Many people assume that if they don't receive cash, they don't have income. The IRS receives a copy of every Form 1099-C, and failing to report it will trigger notices and potential consequences. Even if you disagree with the form, you must address it on your return—either by reporting the income or filing Form 982 to claim an exclusion. IRS.gov

Mistake 2: Not Filing Form 982 When You Qualify

To show that you are excluding canceled debt from income under the insolvency exclusion or bankruptcy exclusion, you must attach Form 982 to your federal income tax return. Simply not reporting the Form 1099-C won't work—the IRS will assume it's taxable and assess additional tax, penalties, and interest. IRS.gov

Mistake 3: Incorrectly Calculating Insolvency

The insolvency calculation must be done immediately before the debt cancellation. Include all debts (credit cards, mortgages, car loans, medical bills) and all assets (home equity, car value, bank accounts, retirement accounts, personal property) at fair market value. Use Publication 4681's worksheet to ensure accuracy. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. IRS.gov

Mistake 4: Confusing Collection Status with Cancellation

If a creditor continues to attempt to collect the debt after you receive a 1099-C, the debt may not have been canceled and you may not have income from a canceled debt. Verify your specific situation with the creditor. IRS.gov

Mistake 5: Mixing Up Property Disposition and Debt Cancellation

If you own property securing a debt, cancellation of the debt may occur due to foreclosure, repossession, voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification. You are treated as having sold that property to the creditor. The tax treatment of the deemed sale depends on whether you were personally liable for the debt (recourse debt) or not personally liable for the debt (nonrecourse debt). Don't forget to report both transactions when applicable. IRS.gov

Mistake 6: Reporting in the Wrong Tax Year

Report the canceled debt in the year shown in Box 1 of Form 1099-C (the identifiable event date), not necessarily when you receive the form. File Form 1099-C in the year following the calendar year in which the identifiable event occurs. If you receive a 2022 Form 1099-C in 2024, you still need to report it for 2022 by filing an amended return. IRS.gov

What Happens After You File

IRS Matching Process

The IRS compares information from third parties, such as employers or financial institutions, against what you report on your tax return. If you report the canceled debt income (or properly exclude it with Form 982), your return should process normally. IRS.gov

If You Don't Report It

If the IRS finds a Form 1099-C that you didn't report, you'll typically receive a CP2000 Notice (Notice of Underreported Income). This notice is issued when the IRS finds a discrepancy in your tax return, proposing adjustments to income, payments, credits, or deductions. The CP2000 is not a bill, but rather a proposal for changes to your tax return. You'll have an opportunity to respond, explain any exclusions, and provide documentation. IRS.gov

Potential Penalties

If you don't report the taxable amount of the canceled debt, the IRS may send you a notice proposing to assess additional tax and may audit your tax return. In addition, the IRS may assess additional tax, penalties and interest. IRS.gov

State Tax Implications

Most states that have income taxes follow federal rules on canceled debt, but some have different exclusions or rules. Check your state's tax agency for state-specific requirements.

Impact on Future Tax Returns

Generally, if you exclude canceled debt from income under one of the exclusions, you must reduce certain tax attributes (certain credits and carryovers, losses and carryovers, basis of assets, etc.) (but not below zero) by the amount excluded. For cancellation of qualified principal residence indebtedness that's excluded from income, you must only reduce your basis in your principal residence. These reductions carry forward and affect future transactions. IRS.gov

FAQs

Q1: Do I still owe the debt after receiving Form 1099-C?

Generally, no. After a debt is canceled, the creditor may send you a Form 1099-C showing the amount canceled and date of cancellation. However, if a creditor continues to attempt to collect the debt after you receive a 1099-C, the debt may not have been canceled and you may not have income from a canceled debt. Verify your specific situation with the creditor. IRS.gov

Q2: Can I avoid paying tax on canceled debt if I was broke when it was forgiven?

Yes, through the insolvency exclusion. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. You must file Form 982 to claim this exclusion. IRS.gov

Q3: What if I received Form 1099-C years after the debt was actually forgiven?

The creditor should have reported it when an "identifiable event" occurred. Your responsibility to report the correct taxable amount of canceled debt as income on your tax return for the year in which the cancellation occurred remains, regardless of when you received the Form 1099-C. If the form shows a date from a prior year, you may need to file an amended return for that year. IRS.gov

Q4: Is forgiven student loan debt taxable?

It depends. For discharges occurring after December 31, 2017, creditors are not required to file Form 1099-C for student loan indebtedness if the discharge of the debt is due to the student's death or permanent and total disability. Additionally, certain student loan discharges after December 31, 2020, and before January 1, 2026, may qualify for exceptions, as well as amounts received or forgiven under certain student loan repayment assistance programs. IRS.gov

Q5: Does canceled mortgage debt on my home qualify for exclusion?

Yes, if it's qualified principal residence indebtedness. Cancellation of qualified principal residence indebtedness that is discharged before January 1, 2026, or discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2026, can be excluded from gross income. Generally, if you exclude canceled debt from income under this exclusion, you must reduce your basis in your principal residence by the amount excluded. You must report the amount qualifying for exclusion on Form 982 and attach to your tax return. IRS.gov

Q6: What's the difference between an "exception" and an "exclusion"?

Exceptions mean the canceled amount isn't considered canceled debt income in the first place (like amounts canceled as gifts, bequests, devises, or inheritances; certain qualified student loans; amounts that would be deductible if paid; qualified purchase price reductions). Exclusions mean the canceled debt IS income but can be excluded under special circumstances (debt canceled in bankruptcy, debt canceled to the extent insolvent, cancellation of qualified farm indebtedness, cancellation of qualified real property business indebtedness, cancellation of qualified principal residence indebtedness). Exclusions require Form 982 and may require reducing tax attributes. IRS.gov

Q7: Where can I get help if I'm confused about Form 1099-C?

Review IRS Publication 4681 (Canceled Debts, Foreclosures, Repossessions, and Abandonments), which explains the federal tax treatment of canceled debts, foreclosures, and repossessions, and includes detailed explanations, examples, and worksheets. You can also contact the Taxpayer Advocate Service if you need assistance with IRS issues related to Form 1099-C. IRS.gov

Remember: Canceled debt is a complex area of tax law, and individual circumstances vary widely. While this guide provides general information based on 2022 IRS rules, consider consulting a tax professional if you have questions about your specific situation—especially when dealing with bankruptcy, insolvency calculations, or large amounts of canceled debt.

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