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The 1099C may meet one of the exclusion from income as outlined below.
Cancellation of debt and 1099- C is discussed in the IRS Topic Number 431-Canceled Debt- Is it taxable or Not
If your debt is forgiven or discharged for less than the full amount you owe, the debt is considered canceled in the amount that you don't have to pay. The law provides several exceptions, however, in which the amount you don't have to pay isn't canceled debt.
After a debt is canceled, the creditor may send you a Form 1099-C, Cancellation of Debt, showing the amount of cancellation of debt and the date of cancellation, among other things.
In general, you must report any taxable amount of a canceled debt as ordinary income from the cancellation of debt on Form 1040, U.S. Individual Income Tax Return,
Caution: If property secured your debt and the creditor takes that property in full or partial satisfaction of your debt, you're treated as having sold that property for the amount of the canceled debt and may have a taxable gain or loss.
The gain or loss on a deemed sale of your property is an issue separate from whether any cancellation of debt income associated with that same property is includable in gross income. See Pub 544, Sales and Other Dispositions of Assets, and Pub 23, Selling Your Home, for detailed information on reporting gain or loss from repossession, foreclosure, or abandonment of property.
Canceled debt EXCLUSIONS from Gross Income:
- Debt canceled in a Title 11 bankruptcy case
- Debt canceled during insolvency
- Cancellation of qualified farm indebtedness
- Cancellation of qualified real property business indebtedness
- Cancellation of qualified principal residence indebtedness