Getting a Form 1099-C for debt you no longer owe can feel like good news followed by a tax bill. In general, cancelled debt is income, but there are real exceptions, and the form itself can be wrong or premature.
This guide explains what each box and code means, when cancelled debt is taxable, the exclusions that can keep it out of income, and what to do if the amount is wrong or the creditor keeps collecting. It follows the IRS form instructions and IRS Topic 431.
| Box | What it shows | Notes |
|---|---|---|
| Box 2 | The amount of debt either actually or deemed discharged | If you disagree with the amount, contact your creditor |
| Box 3 | Interest, if included in the debt reported in box 2 | Pub. 4681 explains whether you include it |
| Box 5 | Whether you were personally liable for repayment | Affects how foreclosures and repossessions are reported |
| Box 6 | The reason the creditor filed the form (an identifiable event code) | A bankruptcy, B other judicial debt relief, C statute of limitations, D foreclosure election, E probate, F by agreement, G decision to stop collecting, H other actual discharge before an identifiable event |
| Box 7 | Fair market value of property, if a foreclosure or abandonment happened the same year | Or you may receive a separate Form 1099-A |
A creditor files Form 1099-C for each debtor for whom it cancelled a debt of $600 or more, when an identifiable event has occurred. The filing threshold does not change your own duty: if a creditor has discharged a debt you owed, you must include the discharged amount in income even if it is less than $600, unless an exclusion applies.
In general, if your debt is cancelled, forgiven or discharged for less than the amount owed, the amount of the cancelled debt is taxable. If taxable, you must report it on your tax return for the year in which the cancellation occurred, as ordinary income on Form 1040. The law provides several exceptions in which the discharged amount is not considered cancelled debt, including amounts received or forgiven under certain student loan repayment assistance programs.
| Exclusion | Notes |
|---|---|
| Debt cancelled in a Title 11 bankruptcy case | Excluded |
| Debt cancelled to the extent you are insolvent | Only to the extent of the insolvency |
| Qualified farm indebtedness | Excluded |
| Qualified real property business indebtedness | Excluded |
| Qualified principal residence indebtedness | Only if discharged before January 1, 2026, or under a written arrangement entered into before January 1, 2026 |
If you exclude cancelled debt under one of these, you must generally reduce certain tax attributes (credits, loss carryovers, asset basis) and report the exclusion on Form 982 attached to your return. Publication 4681 has the detail.
A credit card company cancels $8,000 of debt in 2026 and sends a Form 1099-C with $8,000 in Box 2. If no exclusion applies, the $8,000 is ordinary income for 2026. If it falls entirely in the 22% federal bracket (taxable income over $50,400 up to $105,700 for single filers in 2026), the extra federal tax is about $1,760.00 ($8,000 x 22%). If you were insolvent, bankrupt or another exclusion applies, some or all may be excluded, and you file Form 982.
After a debt is cancelled, the creditor may send you a Form 1099-C showing the amount cancelled and the date. Contact the creditor if the information is incorrect. If a creditor continues to attempt to collect the debt after you receive a 1099-C, the debt may not have been cancelled and you may not have income from a cancelled debt. Your responsibility to report the correct taxable amount of cancelled debt remains regardless of the accuracy of the Form 1099-C you received, so keep your own records. If an identifiable event has occurred but the debt has not actually been discharged, the form instructs you to include the debt in income in the year it is actually discharged, unless an exception or exclusion applies.
IRS Form 1099-C and instructions, IRS Instructions for Forms 1099-A and 1099-C, IRS Topic no. 431, Canceled debt.