You most likely need to maned your tax return. In most situations, if you receive a Form 1099-C from a lender after negotiating a debt cancellation with them, you'll have to report the amount on that form to the Internal Revenue Service as taxable income.
Canceled, forgiven, or discharged debt is considered taxable income unless it qualifies for either an exclusion or an exception.
Debt that qualifies for an exclusion:
- Cancelation of qualified principal residence indebtedness (as mortgage debt relief). In this scenario, TurboTax will complete Form 982 and include it with your return.
- Debt canceled under Title 11 bankruptcies*
- Debt (the amount exceeding your assets) canceled during insolvency*
- Cancelation of qualified farm or real property indebtedness*
*You can report this type of excludable debt in the TurboTax CD/Download software; it's not supported in TurboTax Online or the mobile app. Due to the complexity of this topic, we recommend consulting a tax professional. Also see IRS Publication 4681 for more info.
When to Use Tax Form 1099-C for Cancellation of Debt
