1099 Forgiveness of Debt Instructions

When a creditor forgives any portion of a debt that you owe, it can claim that debt as a loss on its annual profit and loss statement. This translates to a tax deduction for the business. If the amount forgiven exceeds $600, the creditor must send you a Form 1099-C to file with the Internal Revenue Service. Because the creditor wrote off your debt as a tax loss, the IRS requires you to claim the forgiven debt as income when you file your tax return for the year.

• 1

  Download and print Form 1040 from the Internal Revenue Service's website at IRS.gov or request a copy of Form 1040 from your tax preparer.

• 2

  Enter the amount contained in line 2 of Form 1099-C, "canceled debt," on line 21 of Form 1040.

• 3

  Submit your tax forms via mail or online as you normally do. You do not need to provide the Internal Revenue Service with a copy of Form 1099-C.