Do I need to report amounts from 1099-C?

If you owe a debt to someone who cancels or forgives all or some of the debt, you're treated as having received income for income tax purposes, and you may or may not have to pay tax on this income.

A debt includes debt you’re fully liable for like credit card debt and debt that you’re liable for only up to the value of property securing the debt such as a mortgage debt secured by a home in some states. A debt secured by property may be considered canceled because of a foreclosure, a repossession, you voluntarily returned the property to the lender, you abandoned the property, or because of a loan modification.

If a debt was canceled, forgiven, or discharged, you’ll receive an IRS Form 1099-C, Cancellation of Debt, from the lender or the person who forgave the debt.

Determine whether the cancellation of debt is taxable income or if it qualifies for an exception, which means it isn't taxable income.

The amount of canceled debt is included in your taxable income unless one of the following exceptions applies:

• Debt that’s canceled as a gift, bequest, devise, or inheritance;
• Certain cancellations of student loans;
• A payment of the debt that would have been a deductible expense for the tax year in which it was paid; For example: Your mortgage company cancels the mortgage on your home. Part of the forgiven debt is interest that you could have deducted on your tax return if you’d paid it. The amount of interest forgiven isn't included in income.
• A qualified purchase price reduction given by a seller;
• Debt canceled in a Title 11 bankruptcy case;
• Debt canceled during insolvency; You're insolvent when your total liabilities (what you owe) exceed (more than) the value of your total assets. You may use IRS Publication 4681, Insolvency Worksheet, to determine if you were insolvent just before the cancellation.
• Cancellation of qualified farm indebtedness;
• Cancellation of qualified real property business indebtedness;

If a canceled debt isn't taxable income, you may need to complete IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).