Cancellation of Debt
Form1099-C means if you have more than $600 of taxable debt forgiven than you will receive a 1099-C Cancellation of Debt form from the lender, and lender should file the form with the IRS and also he/she should send the forms to taxpayer. This form is a tax document that will help you determine whether you owe debt forgiveness or not. You can use this form when you file the tax return and you might pay the tax to IRS in certain circumstances.
Taxpayer should report Form 1099-C as ordinary income on your federal tax return even the debt was less than $600 and even if you never received a Form 1099-C and it will reflect on Form 1040 under Schedule 1 other Income. If you want to exclude from your taxable income you will need to file Form 982 with your tax return, if you forget to add the Form 1099-C in filing the return you can file the amendment to your tax return.
A debt is deemed canceled on the date an identifiable event occurs
⦁ A discharge in bankruptcy
⦁ A cancellation or extinguishment when the statute of limitations for collecting the debt expires
⦁ A cancellation or extinguishment making the debt unenforceable under a probate or similar proceeding.
⦁ Other actual discharge before identifiable event. Enter “H” in box 6 if there is an other actual discharge before one of the identifiable events listed above.
The Form 1099-C containing following boxes.
Box 1. Reports to date of identification event: It tells about date of title is transferred to the lenders or date possession and the burdens and benefits of ownership are transferred to the lender.
Box 2. Reports Amount of debt discharged: If your debt is forgiven or discharged for less than the full amount you owe, the debt is considered canceled in the amount that you don’t have to pay. The law provides several exceptions, however, in which the amount you don’t have to pay isn’t canceled debt.
Box 3. Reports Interest if included in box 2: reports any interest that might have been included in the figure in Box 2.
Box 4. Reports debt description: This box reports description of property or types of property, address of the property and block or lot details.
Box 5. Borrower Personally Liable for Repayment of the Debt: In this box containing if the borrower was personally liable for repayment of the debt at the time the debt was created or, if modified, at the time of the last modification, enters an “X” in the checkbox.
Box 6. Reports Identifiable events code: Enter the appropriate code to report the nature of the identifiable event
Box 7. Reports Fair market value of the Property: For a foreclosure, execution, or similar sale, enters the FMV of the property or otherwise, makes no entry in this box. FMV should include the appraised value of the property if the property is sold in a short sale.
The Form should fill the Creditors name and address includes zip code, need to fill the creditor’s TIN number. And also fill the Debtors address and zip code and Debtors TIN number and Account number.
Exception to file the Form 1099-C as below
⦁ Certain bankruptcies.
⦁ Interest. You are not required to report interest.
⦁ Non-principal amounts. Non- principal amounts include penalties, fines, fees, and administrative costs.
⦁ Release of a debtor. You are not required to file Form 1099-C if you release one of the debtors on a debt as long as the remaining debtors are liable for the full unpaid amount.
A government agency issues Form 1099-G to inform you of funds received
A Health Savings Account (HSA) is a custodial or tax-exempt trust account created for or by individuals .