Form 1099-C Problems

This post is in: Business


If a lender forgives you for debt, you have what is called ‘cancellation of debt’ income. This could come from a credit card write-off or write-down or from real estate in the case of foreclosure, deed-in-lieu of, short sale or loan modification.
The lender is supposed to provide a Form 1099-C by January 31st of the next year if you’ve had cancellation of debt. There are a couple of exceptions though – if the lender knows this was your primary residence or that you’ve declared bankruptcy, they may not issue the Form 1099-C to you. That’s because they know that you won’t owe tax if you have declared bankruptcy or its your primary residence.

But not getting a Form 1099-C could also mean two other things, and this is where it gets confusing. It could mean that the Form 1099-C was mailed to another address or it could mean that the lender has not forgiven the debt.
Or it could mean that the lender just screwed up.

Let’s assume that the lender is doing what they are supposed to and have sent you a Form 1099-C for an investment property. It will show the amount of forgiven debt. This is calculated as the amount they got from a sale of the property less the debt you had. If the debt is higher then the value, then there is additional debt. If it’s forgiven, you have cancellation of debt that is taxable.

You don’t owe tax on that cancellation of debt, though, if it is your primary residence, you have filed bankruptcy or you are insolvent. If you receive a Form 1099-C and you meet one of those exceptions, file a Form 982 along with your return. Report the Form 1099-C amount on that form.

You may find that the sales price in the Form 1099-C calculation is different than the amount reported on Form 1099-A. Use the Form 1099-C amount to report the disposal of the property on Schedule D or Form 4797. If you’ve got different years involved, you may need to file an amendment.

That’s the straightforward information on the Form 1099-C, but there are dozens of different types of mistakes that lenders are making. How do you report the forms then? It’s tricky and this is where you’ll want to have a tax pro who understands real estate tax involved.

If you’ve received, or expect to receive, a Form 1099-A or Form 1099-C, you will want to join us on Saturday, February 5, 2011 at 9 am PST, Noon EST for the FREE teleseminar “You Just Got a Form 1099-A (or Form 1099-C) – Now What?” We’ll answer questions during the call. Please sign up now at DianesSeminars.


  1. Dan says:

    We received a 1099C for a construction loan. It is not for a primary residence and the property (state of MN) is not in foreclosure.
    The amount on the 1099C was the difference between the original loan amount (2006) and the recent appraisal (2010).
    We understand the tax obligation and will work with our accountant on that. Is there a legal obligation or will the lender/bank come after us for the amount listed on the 1099C for the cancellation of debt?

  2. Diane Kennedy says:

    Dan, if you’ve got a Form 1099-C that means debt forgiveness. That means they’ve forgiven the debt. I don’t see how they can later come back and ‘unforgive’ it and ask for the money back. Most likely this is a better question for your attorney to make sure the common sense answer is really the legal answer.

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