A 1099-C is an IRS tax form sent by a lender when it cancels or forgives a debt you owed. The forgiven amount is generally considered taxable income by the IRS.
Why It Matters
If a lender forgives all or part of a debt — whether a mortgage, personal loan, or credit card — the amount forgiven is treated as income. The lender issues a 1099-C for the forgiven amount, and you must report it on your tax return.
Common Landlord Scenarios
- A tenant breaks a lease and you forgive the remaining rent owed — in some cases a 1099-C may be issued for the forgiven amount.
- A short sale or foreclosure on a rental property results in forgiven mortgage debt.
- A settlement with a contractor or vendor results in debt forgiveness.
Exceptions
There are several situations where forgiven debt may not be taxable:
- Bankruptcy: Debts discharged in bankruptcy are generally not taxable.
- Insolvency: If your liabilities exceed your assets at the time the debt is forgiven, you may be able to exclude the forgiven amount up to the extent of your insolvency.
- Qualified Principal Residence Indebtedness: Under certain conditions, forgiven mortgage debt on a primary residence may be excluded (subject to legislative limits and expiration dates).
Key point: Receiving a 1099-C does not automatically mean you owe taxes on the full amount. Consult a tax professional to determine whether an exclusion applies to your situation.