How to File a 1099-C Cancellation of Debt Form
Occasionally, debtors may be able to negotiate a reduction in their loan balances by negotiating with creditors. Particularly in difficult economic times, creditors are more likely to cancel, or "forgive," some or all of the debt they are owed. While the cancelled debt does not ever have to be paid back, most cancelled debt must be reported to the Internal Revenue Service (IRS) as taxable income, via form 1099-C.
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Instructions
Consult the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA). Much of the debt forgiven during the most recent recession was mortgage-related, particularly through foreclosures. Given the state of the economy, Congress passed the MFDRA to grant taxpayers relief from paying tax on cancelled housing-related debt. Specifically, the act states that debt cancelled in conjunction with mortgage restructuring or foreclosure on a principal residence is exempt from inclusion in income. The provision applies to debt up to $2 million (or $1 million for married filing separately) forgiven from 2007 to 2012. If this major exception applies to you, you do not need to file a 1099-C cancellation of debt form at all.
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Carefully read any 1099-C which you receive. If your debt is cancelled and does not fall into the MFDRA exemption, as is the case with credit card debt, then each lender that cancelled your debt is required to send you a 1099-C "Cancellation of Debt" form. This form will list the creditor and debtor name and address, the date and amount of the cancelled debt, and a description of the debt. The most important line for your tax filing is line 2, "amount of debt canceled." Transfer this figure to line 21, "other income," on your Form 1040 when you file your taxes.
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Do not file a 1099-C if you have claimed bankruptcy. If your debts were eliminated due to personal bankruptcy, then they were not cancelled, but rather discharged. This means that your debts have been permanently erased, with no further tax consequence to you. While bankruptcy carries with it a host of other negatives, such as a badly damaged credit report, it does allow you to avoid filing a 1099-C.
IRS Form 1040 Instruction
Occasionally, debtors may be able to negotiate a reduction in their loan balances by negotiating with creditors. Particularly in difficult economic times, creditors are more likely to cancel, or "forgive," some or all of the debt they are owed. While the cancelled debt does not ever have to be paid back, most cancelled debt must be reported to the Internal Revenue Service (IRS) as taxable income, via form 1099-C.
Free Federal Tax Calculator
Instructions
Consult the Mortgage Forgiveness Debt Relief Act of 2007 (MFDRA). Much of the debt forgiven during the most recent recession was mortgage-related, particularly through foreclosures. Given the state of the economy, Congress passed the MFDRA to grant taxpayers relief from paying tax on cancelled housing-related debt. Specifically, the act states that debt cancelled in conjunction with mortgage restructuring or foreclosure on a principal residence is exempt from inclusion in income. The provision applies to debt up to $2 million (or $1 million for married filing separately) forgiven from 2007 to 2012. If this major exception applies to you, you do not need to file a 1099-C cancellation of debt form at all.
Free Federal Tax Return
Carefully read any 1099-C which you receive. If your debt is cancelled and does not fall into the MFDRA exemption, as is the case with credit card debt, then each lender that cancelled your debt is required to send you a 1099-C "Cancellation of Debt" form. This form will list the creditor and debtor name and address, the date and amount of the cancelled debt, and a description of the debt. The most important line for your tax filing is line 2, "amount of debt canceled." Transfer this figure to line 21, "other income," on your Form 1040 when you file your taxes.
Georgia State Tax Extension
Do not file a 1099-C if you have claimed bankruptcy. If your debts were eliminated due to personal bankruptcy, then they were not cancelled, but rather discharged. This means that your debts have been permanently erased, with no further tax consequence to you. While bankruptcy carries with it a host of other negatives, such as a badly damaged credit report, it does allow you to avoid filing a 1099-C.
IRS Form 1040 Instruction