Form 1099-C: Canceled Debt and Property Loss (2025 IRS Guide)

This guide covers “Form 1099-C” within canceled debt and property loss. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered canceled in whatever amount it remained unpaid. There are exceptions to this rule, discussed under Exceptions, later. Generally, you must include the canceled debt in your income. However, you may be able to exclude the canceled debt. See Exclusions, later.

A debt includes any indebtedness:

• For which you are liable, or

• Subject to which you hold property.

If you aren’t personally liable for the debt, you don’t have ordinary income from the cancellation of debt unless you retain the collateral and either:

• The lender offers a discount for the early payment of the debt, or

• The lender agrees to a loan modification that results in the reduction of the principal balance of the debt.

However, upon the disposition of the property securing a nonrecourse debt, the amount realized includes the entire unpaid amount of the debt, not just the FMV of the property. As a result, you may realize a gain or loss if the outstanding debt immediately before the disposition is more or less than your adjusted basis in the property. For more details on figuring your gain or loss, see chapter 2 of this publication or see Pub. 544.

There are several exceptions and exclusions that may result in part or all of a canceled debt being nontaxable. See Exceptions and Exclusions, later. You must report any taxable canceled debt as ordinary income on:

• Schedule 1 (Form 1040), line 8c, if the debt is a nonbusiness debt;

• Schedule C (Form 1040), line 6, if the debt is related to a nonfarm sole proprietorship;

• Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property;

• Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or

• Schedule F (Form 1040), line 8, if the debt is farm debt and you are a farmer.

Form 1099-C

If you receive a Form 1099-C, that means an applicable entity has reported an identifiable event to the IRS regarding a debt you owe. For information on the reasons an applicable entity files Form 1099-C, see Identifiable event codes, later. Unless you meet one of the exceptions or exclusions discussed later, this canceled debt is ordinary income and must be reported on the appropriate form discussed above.

.If you had a student loan that was discharged after December 31, 2020, and the amount of the discharged loan is nontaxable, you won’t receive a Form 1099-C from the lender or servicer of your student loan..

An applicable entity includes the following.

1. A financial institution.

2. A credit union.

3. Any of the following, its successor, or subunit of one of the following.

   1. The Federal Deposit Insurance Corporation (FDIC).

   2. The Resolution Trust Corporation (RTC).

   3. The National Credit Union Administration (NCUA).

   4. Any other federal executive agency, including government corporations, any military department, the U.S. Postal Service, or the Postal Rate Commission.

4. A corporate subsidiary of a financial institution or credit union (if the affiliation subjects the subsidiary to federal or state regulation).

5. A federal government agency, including a department, an agency, a court or court administrative office, or a judicial or legislative instrumentality.

6. Any organization of which lending money is a significant trade or business.

For more information on the applicable entities that must file a Form 1099-C, see the Instructions for Forms 1099-A and 1099-C, available at irs.gov/instructions/i1099ac.

Identifiable event codes.

Box 6 of Form 1099-C should indicate the reason the creditor filed this form. The codes shown in box 6 are explained next. Also, see the chart after the explanation for a quick reference guide for the codes used in box 6.

Code A—Bankruptcy. Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case. See Bankruptcy, later.

Code B—Other judicial debt relief. Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy.

Code C—Statute of limitations or expiration of deficiency period. Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired.

Code D—Foreclosure election. Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor’s right to pursue collection of the debt. This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised.

Code E—Debt relief from probate or similar proceeding. Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding.

Code F—By agreement. Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration.

Code G—Decision or policy to discontinue collection. Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. For purposes of this identifiable event, a defined policy includes both a written policy and the creditor’s established business practice.

Code H—Other actual discharge before identifiable event. Code H is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through G.

Form 1099-C Reference Guide for Box 6 Identifiable Event Codes

.Even if you didn’t receive a Form 1099-C, you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies..

Amount of canceled debt.

The amount in box 2 of Form 1099-C may represent some or all of the debt that has been canceled. The amount in box 2 will include principal and may include interest and other nonprincipal amounts (such as fees or penalties). Unless you meet one of the exceptions or exclusions discussed later, the amount of the debt that has been canceled is ordinary income and must be reported on the appropriate form, as discussed earlier.

Interest included in canceled debt.

If any interest is included in the amount of canceled debt in box 2, it will be shown in box 3. Whether the interest portion of the canceled debt must be included in your income depends on whether the interest would be deductible if you paid it. See Deductible Debt under Exceptions, later.

Persons who each receive a Form 1099-C showing the full amount of debt.

If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. However, you may not have to report that entire amount as income. The amount, if any, you must report depends on all the facts and circumstances, including:

• State law,

• The amount of debt proceeds each person received,

• How much of any interest deduction from the debt was claimed by each person,

• How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and

• Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication.

See Example 3 under Insolvency, later.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments: Canceled Debts — Form 1099-C — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.