What Is a 1099-C?
A Form 1099-C is a Cancellation of Debt, which is required to be filed if a creditor has cancelled a debt greater than $600 or more, if:1) the creditor is an applicable financial entity, and 2) an identifiable event has occurred
Why did I get a 1099-C?
Here are four common reasons you may receive a form 1099-C.
You settled a debt for less than what you originally owed.
You did not pay on a debt for at least three years, and there was no collection activity for the past year.
Your home was foreclosed and your deficiency (the difference between what was owed and the value of the home) was either forgiven or you haven’t paid it.
Your home was sold in a short sale, and you made a deal with your lender to pay less than what was due.
Will I receive a Form 1099-C if I filed for bankruptcy?
There is an exception to the rule of all canceled debts requiring a 1099-C. If a debt is canceled due to bankruptcy, you will likely be exempt from the tax on the forgiven debt due to insolvency. It is important to understand you will want to report the forgiven debt and the exemption from income on your tax return.
If I receive a 1099-C, does that mean my debt is paid?
This depends on why you received the 1099-C in the first place. If it’s because you settled your debt, then yes, your debt is resolved. However, if it’s because you haven’t made any payments on a debt for three years and the debt collector hasn’t tried to collect recently, then your debt is not in the clear and you may still owe.
What do I do if I get a 1099-C for a debt I paid?
Ask the creditor to make the necessary corrections. This will require them to file a corrected Form 1099-C. If the creditor refuses to make the corrections, you will have to file Form 4598 as an attachment to your tax return. You will need to include the supporting documentation.
Do I have to address the 1099-C, on my return, in the tax year I receive one?
Yes, it is very important that you address the forgiveness of debt on your return or you will receive an IRS notice for failure to report taxable income.
Is there a statute of limitations on a 1099-C filing?
There is no statute as to when the form must be filed. If the debt has been cancelled, contact the creditor and request the Form 1099-C be issued.
What does the amount on the Form 1099-C indicate?
The amount listed is the amount of the debt that was forgiven.