What Is Form 1009c (1099-C) and How Do You Report It?
Understand the tax implications when a lender cancels your debt. This guide explains how to determine if it's taxable and the process for proper reporting.
If you received a document labeled “1009c,” you are holding IRS Form 1099-C, Cancellation of Debt, as “1009c” is a common typo. This form is not a bill, but an informational document sent to you and the Internal Revenue Service (IRS). Its purpose is to report that a creditor has forgiven a debt you owed of $600 or more.
When a debt is canceled, the borrower receives income because they are no longer required to pay back the money. This form is triggered by events such as a credit card balance being written off, a mortgage modification, or a repossession where a loan balance remains. The lender is required to send you a copy of the form by January 31st of the year following the debt cancellation.
Understanding Your Form 1099-C
Financial entities like banks, credit unions, and credit card companies must issue Form 1099-C when they cancel a qualifying amount of debt. The form contains several boxes with specific information for your tax situation.
The significant fields are Box 1, Box 2, and Box 6. Box 1 shows the “Date of identifiable event,” which is when the cancellation occurred. Box 2, “Amount of debt discharged,” reports the total amount forgiven, including principal, interest, and fees, and is the figure that may be considered income.
Box 6 contains an “Identifiable event code” that explains why the debt was canceled. For example, code ‘A’ signifies a cancellation due to a bankruptcy filing, while code ‘G’ indicates a lender’s decision to discontinue collection. Understanding these codes provides context for why you received the form.
Determining if the Canceled Debt is Taxable
The IRS rule is that canceled debt is considered taxable income. The amount in Box 2 of your Form 1099-C should be included in your gross income because you have an economic benefit from being relieved of the debt. This income is taxed at your ordinary income tax rates.
However, the tax code provides exceptions that may allow you to avoid paying tax on forgiven debt. The most common is the insolvency exclusion, where your total liabilities are greater than the fair market value of your total assets. If you were insolvent immediately before the debt was canceled, you can exclude the canceled debt from your income up to the amount by which you were insolvent.
To claim the insolvency exclusion, you must calculate your financial position on the day before the debt was forgiven. This involves listing all your assets at fair market value and comparing that total to all your liabilities. Any amount of canceled debt that exceeds the amount you were insolvent by is still taxable.
Other exclusions exist as well. Debt discharged in a Title 11 bankruptcy case is not considered taxable income. Another exclusion applies to qualified principal residence indebtedness, which allows homeowners to exclude canceled mortgage debt on their main home. Through 2025, the maximum amount of forgiven debt excluded under this provision is $750,000, or $375,000 for a married individual filing separately.
Information and Forms for Reporting Canceled Debt
If your canceled debt is taxable, report the amount from Box 2 of Form 1099-C as “Other Income” on Schedule 1 of your Form 1040. This amount is then added to your other sources of income to calculate your total gross income.
If you qualify for an exclusion, you must file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. This form is required to claim the exclusion and show the IRS why you are not including the canceled debt in your income. Filing this form is necessary even if the exclusion covers the entire amount of the canceled debt.
When claiming the insolvency exclusion, you will need to use the insolvency worksheet found in IRS Publication 4681. This worksheet guides you through listing your assets and liabilities to calculate the amount of your insolvency. You do not file the worksheet with your return, but you use its result to fill out Form 982.
On Form 982, check the box on Line 1 that corresponds to the exclusion you are claiming and enter the total amount of the discharged debt you are excluding on Line 2. The form also requires you to address “tax attributes,” like capital loss carryovers, that may need to be reduced by the amount of the excluded debt. Many individuals may not have these attributes to reduce.
Filing Your Tax Return with Canceled Debt
When you file your tax return, keep your Form 1099-C for your records. Do not file it with your return, as the IRS has already received its own copy from the lender.
If you are claiming an exclusion, you must attach the completed Form 982 to your Form 1040. For those who file electronically, tax software will guide you through completing Form 982 and will transmit it with the rest of your return.
Should a portion of your canceled debt remain taxable after applying an exclusion, that amount must be reported on your return. This ensures the income is properly included in your adjusted gross income calculation.
The IRS uses the information from the Form 1099-C it received from your lender to verify that you have addressed the canceled debt on your return. Accurate reporting is important to avoid potential notices or inquiries.