1099-C Cancelation of Debt and helpful tips

Zachary Runyan, CPA
Jun 7
1 min read

Updated: Jun 9

Have you received a 1099-C Cancelation of Debt?

If so, then I hate to tell you this might have to be included in your taxable income. A 1099-C is basically provided to you when you negotiate a loan or credit card for less than the current balance. This amount you didn't have to pay is considered taxable income, if the 1099-C was filed.

So, what do you do? Pay the tax? Maybe, but it might be worth looking to see if you qualify for one of the reasons that this can be excluded from your gross income. This is done by Form 982: Reduction of Tax Attributes.

These include

Discharge of indebtedness in a bankruptcy
Discharge of indebtedness to the extent insolvent (not in a bankruptcy)
Discharge of qualified farm indebtedness
Discharge of qualified real property business indebtedness
Discharge of qualified principal residence indebtedness

This doesn't mean that all of the canceled debt will be excluded, since there are limits. However, this could mean a portion could be excluded and would reduce your taxable liability.

If this scenario applies to you, please reach out and see if we are able to help you! For more information, please reach out and book a meeting to get started! Click here to book a call or call 719-285-7554.