Form 1099-C: Cancellation of Debt
Form 1099-C is issued when a lender forgives $600 or more of debt. In real estate, it commonly follows short sales, foreclosures, deed-in-lieu transactions, and principal-reducing loan modifications.
What It Reports
- Box 2: Amount of cancelled debt
- Box 3: Interest included in cancelled amount
- Box 1: Date of cancellation
- Box 6: Code identifying the reason for cancellation
Tax Exclusions
- Insolvency: Excluded up to the amount liabilities exceed assets
- Bankruptcy: Debt discharged in bankruptcy excluded
- Principal residence: Up to $750,000 of primary residence debt
- Farm/business: Qualified farm and real property business debt
- Form 982: Must be filed to claim exclusions
Short Sale Tax Impact
Difference between mortgage balance and sale price may be cancelled debt. Tax impact depends on exclusion eligibility, recourse vs. nonrecourse status, and whether the lender waives deficiency rights.
Related Terms
- Equity — Negative equity triggering cancellation
- Encumbrance — The forgiven mortgage lien
- Closing — Short sale closing procedures
Barnes Walker Real Estate
Barnes Walker's attorneys advise Florida homeowners on the tax implications of debt cancellation and negotiate short sale terms. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC