What is Form 1099-C?
When a creditor cancels or forgives $600 or more of debt you owe, they send a 1099-C. Cancelled debt is generally taxable income — the IRS treats it as if you received that money. However, several IRC Section 108 exclusions can reduce or eliminate the taxable amount.
SupportedKey Boxes
| Box | Description | Where it flows |
|---|---|---|
| Box 2 | Amount of debt discharged | Schedule 1 Line 8z (minus exclusions) |
| Box 3 | Interest included in Box 2 | Informational |
| Box 4 | Debt description | Informational |
| Box 5 | Debtor personally liable | Informational |
| Box 6 | Identifiable event code (A–H) | Determines timing of discharge |
| Box 7 | Fair market value of property | For secured debt calculations |
IRC Section 108 Exclusions
The preparer enters an exclusion amount based on the taxpayer's circumstances:
| Exclusion | Description |
|---|---|
| Bankruptcy | Debt discharged in Title 11 bankruptcy |
| Insolvency | Debtor's liabilities exceed assets immediately before discharge |
| Qualified principal residence | Mortgage debt on primary home (limited) |
| Qualified farm indebtedness | Farm debt exclusion for qualified farmers |
| Qualified real property business | Commercial real estate debt exclusion |
How PaisaTax Handles It
- Upload or manual add — one slot per creditor
- Exclusion input: The preparer enters the exclusion amount based on the applicable Section 108 provision
- Taxable amount = Box 2 - exclusion amount
- Data flow: Taxable cancelled debt flows to Schedule 1 Line 8z as other income
Common Situations
- Credit card debt forgiven: Fully taxable unless the debtor is insolvent or in bankruptcy.
- Mortgage forgiveness: May qualify for the qualified principal residence exclusion.
- Insolvency exclusion: If total liabilities exceed total assets before the discharge, the debt is excluded up to the amount of insolvency. Requires preparer computation.