Instructions for Forms 1099-A and 1099-C, 2017 Tax
Year
Forms 1099-A and 1099-C serve critical roles in reporting property acquisitions and canceled debt to the Internal Revenue Service for the 2017 tax year. Lenders and financial institutions use Form 1099-A to report the acquisition or abandonment of secured property, while Form
1099-C documents cancellation of debt events.
Filing Requirements for Form 1099-A
You must file Form 1099-A when you acquire property that secures a debt through foreclosure, sale, or abandonment by the borrower. The 2017 instructions define acquisition as the moment you obtain legal title, possession, or the right to possession of the secured property.
Report the fair market value of the property on Box 4 as of the acquisition date. Box 2 requires you to enter the outstanding principal balance of the debt as of the date you acquired the property or knew of its abandonment.
In Box 2, the balance that you report must exclusively consist of the unpaid principal of the original debt. Do not include accrued interest, foreclosure costs, late fees, or other charges in this amount.
Box 5 requires you to indicate whether the borrower was personally liable for repayment of the debt at the time the debt was created or last modified. Box 1 must show the date you acquired legal title or possession, which the instructions define as the earlier of the date title transfers or the date the property enters your possession for foreclosure sale or other disposition.
Mandatory Reporting Under Form 1099-C
Financial institutions and applicable financial entities must file Form 1099-C for each debtor when they cancel a debt of $600 or more. The $600 threshold applies to each debt cancellation separately, and you cannot combine multiple cancellations of different debts to determine whether you meet the reporting requirement.
You must file Form 1099-C regardless of whether the debtor is required to report the debt as taxable income. The borrower determines eligibility for exclusions on their individual tax return using Form 982, not on the information return you file.
Form 1099-C requires specific information in designated boxes:
- Box 1 must show the date of the identifiable event that triggered the cancellation
reporting requirement.
- Box 2 must report the total amount of debt discharged, calculated as the outstanding
principal balance minus any proceeds received from property sales or settlement agreements.
- Box 3 allows you to separately report any interest included in the Box 2 amount, though
reporting interest is optional.
- Box 4 requires a description of the debt origin, such as mortgage, credit card debt,
student loans, or car loans.
- Box 5 uses a checkbox to indicate whether the debtor was personally liable for
repayment of the debt.
Principal Residence Debt Exclusion Status for 2017
Section 108(a)(1)(E) provides an exclusion from taxable income for qualified principal residence indebtedness that is canceled or forgiven. This provision originated in the Mortgage Debt Relief
Act of 2007 and was extended through December 31, 2016, by the Protecting Americans from
Tax Hikes Act of 2015.
Additionally, the exclusion was retroactively reinstated for 2017 through subsequent legislation after it expired at the conclusion of 2016. The exclusion applies only to indebtedness incurred to acquire or substantially improve a taxpayer’s principal residence.
Creditors must understand that they cannot withhold filing Form 1099-C based on a borrower’s potential eligibility for the principal residence exclusion. You must file the form for all canceled debts of $600 or more, and the debtor determines their eligibility for exclusions when preparing their Form 1040 and related schedules.
Coordinating Forms 1099-A and 1099-C
When you cancel a debt of $600 or more in connection with a foreclosure or abandonment of secured property during the same calendar year, you may file Form 1099-C only to satisfy both reporting requirements. Completing boxes 4, 5, and 7 on Form 1099-C fulfills your Form 1099-A filing obligation for that debtor.
If you choose to file both forms separately, you must not complete boxes 4, 5, and 7 on Form
1099-C to avoid duplicating the property information already reported on Form 1099-A. The relationship between these forms becomes important when the fair market value is less than the outstanding debt.
Form 1099-A reports the acquisition event and the property’s fair market value, while Form
1099-C reports the actual canceled debt amount. You calculate the cancellation amount by subtracting any proceeds received from the sale or disposition of the property from the outstanding principal balance.
No debt cancellation occurs when sale proceeds equal or exceed the debt balance, and Form
1099-C is not required in such situations. Document the calculation clearly to support your determination of whether debt cancellation reporting is necessary.
Transmittal and Distribution Requirements
You must use Form 1096 as a cover sheet when submitting paper copies of Forms 1099-A and
1099-C to the Internal Revenue Service. When filing multiple types of information returns, you generally must prepare a separate Form 1096 for each form type.
Each Form 1096 serves as a transmittal for only one type of information return, so you count the total number of forms of each type and enter that count on the appropriate Form 1096. Report aggregate amounts in the boxes provided on each separate Form 1096.
Distribution deadlines require strict compliance for the 2017 tax year. Copies of Forms 1099-A and 1099-C must be furnished to the borrower by January 31, 2018.
To satisfy IRS specifications for clarity and required information content, you may submit either the official IRS form or an acceptable substitute. Your statement to the borrower must identify the tax year and form type, and you must include your contact information for borrower questions.
Debtor Classification and Exclusions
You must determine whether the debtor is a U.S. citizen, resident alien, foreign person, or non-U.S. entity before filing Form 1099-C. The 2017 instructions require reporting for debts owed by U.S. persons, which includes citizens and resident aliens.
Different filing requirements apply to foreign persons and non-U.S. entities, and you should consult Publication 519 or the specific foreign entity guidance in the 2017 Form 1099-C instructions for those situations. Proper classification ensures you meet the correct reporting obligations for each debtor type.
Borrowers may claim various exclusions or deferrals for canceled debt under Section 108, including insolvency, Title 11 bankruptcy, qualified farm debt, or qualified real property business debt. Any taxpayer-claimed exclusions must not be used to reduce the reported amount on
Form 1099-C.
Report the full canceled debt amount in all cases, as the taxpayer determines their actual tax treatment through Form 982 and their individual tax return filing. The exclusion determination occurs on the borrower’s tax return, not on your information return.
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