Canceled debt, box by box

Form 1099-C, Cancellation of Debt, is what a lender or other applicable entity files when it cancels $600 or more of a debt you owed after an identifiable event, such as a settlement, a bankruptcy, or a foreclosure. It tells you and the IRS that a debt was forgiven. Canceled debt is generally treated as ordinary income, so you usually report it on your return unless an exception or an exclusion applies.

Usually, yes. When a debt you owed is forgiven, the tax law treats the amount you no longer have to pay as income, so it's generally taxable. There are important exceptions, though. Debt canceled in bankruptcy is excluded, and debt canceled while you were insolvent is excluded up to the amount you were insolvent. You claim those exclusions on Form 982, and even without a 1099-C you're expected to report canceled debt that isn't excluded.

A creditor files a 1099-C for each debtor when it cancels $600 or more of debt and an identifiable event has occurred, like a bankruptcy discharge, a settlement for less than the full balance, a foreclosure, or a decision to stop collecting. The form is required whether or not you end up owing tax on the amount. Creditors generally send the debtor copy by January 31 of the year after the cancellation.

Most nonbusiness canceled debt goes on Schedule 1 of Form 1040, on the cancellation of debt line, which is line 8c, and flows into your total income. If the debt was business debt, it usually goes on the related business schedule instead, such as Schedule C for a sole proprietor. If you qualify to exclude the amount, you file Form 982 to show the exclusion rather than including it as income.

If your total debts were more than the total value of everything you owned immediately before the cancellation, you were insolvent, and you can exclude the canceled debt up to the amount of that insolvency. You figure it with the Insolvency Worksheet in Publication 4681, then attach Form 982 and check the insolvency box. Any canceled debt beyond the amount you were insolvent is still taxable. You also reduce certain tax attributes as part of the exclusion.

Insolvency is the amount by which your liabilities exceeded the fair market value of your assets immediately before the debt was canceled. Add up everything you owed, add up the value of everything you owned, and subtract. If your debts were $50,000 and your assets were $40,000, you were insolvent by $10,000, so you could exclude up to $10,000 of canceled debt. The Insolvency Worksheet in Publication 4681 walks through what to include on each side.

Debt discharged in a Title 11 bankruptcy case is excluded from income entirely. You don't report it as income, but you do file Form 982 to show the exclusion and to reduce your tax attributes, and the creditor generally marks code A in box 6. The bankruptcy exclusion takes priority over insolvency, so if the debt was discharged in bankruptcy you use the bankruptcy rules rather than the insolvency worksheet.

It depends on the year and the law in effect. Through the end of 2025, forgiven debt on a main home could be excluded under the qualified principal residence indebtedness rule, up to $750,000, or $375,000 if married filing separately, and that also covered later discharges under a written agreement made before January 1, 2026. Under current law that specific exclusion has expired for 2026, so confirm the current rules before relying on it. Other exclusions like insolvency or bankruptcy may still apply, and this is different from the mortgage interest deduction.

Box 6 holds a single letter, code A through H, that tells you why the creditor filed. Code A is bankruptcy, B is other judicial debt relief, C is a statute of limitations or expired deficiency period, D is a foreclosure election, E is debt relief from probate or a similar proceeding, F is an agreement between you and the creditor, G is the creditor's decision or policy to stop collecting, and H is an other actual discharge before one of those events. The code doesn't decide whether the debt is taxable; the exceptions and exclusions do.

Box 5 is checked if you were personally liable for repaying the debt when it was created or last modified, which makes it recourse debt. It matters most when property is involved. With recourse debt and a foreclosure, you can have both canceled debt income and a gain or loss on the property. With nonrecourse debt, where the lender can only take the collateral, there's generally no separate cancellation of debt income, though there can still be gain or loss.

You still have to report canceled debt that isn't excluded, even if no form arrived. The $600 threshold controls whether a creditor must file, not whether the amount is taxable to you. If you know a debt was forgiven, include it on Schedule 1 unless an exception or exclusion applies. Not getting a form, or getting one late, doesn't remove the obligation to report the income.

Box 2 should show the debt actually or deemed discharged, which can't be more than the original debt minus any amount the lender recovered, for example through a settlement or a foreclosure sale. If you think box 2 is wrong, contact the creditor and ask them to review it and issue a corrected form if needed. Report the correct amount, and keep records like statements and settlement letters that support the figure you use.

Box 3 shows any interest that the creditor included in the box 2 amount. Whether that interest is taxable depends on your situation. If you're a cash-basis taxpayer and the interest would have been deductible had you paid it, you generally don't have to include that interest portion in income. Publication 4681 explains how to separate the interest and the principal, so the interest in box 3 isn't automatically added on top of the rest.

Form 982 is how you tell the IRS you're excluding canceled debt from income, and under which rule, such as bankruptcy or insolvency. You check the box for the exclusion that applies and enter the amount you're excluding. In most cases you also reduce tax attributes, like a net operating loss or the basis of property, which is the trade-off for not paying tax on the canceled amount now. Publication 4681 walks through both the exclusions and the attribute reduction.

No. The generator helps you fill out and produce a completed 1099-C that you can review, print, and give to the debtor, or use to check the figures. It doesn't transmit anything to the IRS, it isn't a substitute for tax software or a preparer, and it isn't tax advice. You're responsible for the accuracy of the amounts and for meeting your own filing and furnishing deadlines.