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If you've gotten a 1099-C tax form, you might be unsure about its purpose. Typically, it appears when you've settled a debt, and it indicates that you may owe taxes on the portion of the debt that was forgiven or canceled. There are several other scenarios in which this form could be sent, though.
The IRS requires lenders to file a 1099-C if they forgive $600 or more in debt. MarketWatch highlights four common reasons why this might occur:
You negotiated a debt settlement for less than the original amount owed, and the creditor decided to forgive the remaining balance.
You stopped paying a debt for at least three years, and there were no efforts to collect the debt for the past year.
Your home was foreclosed, and the difference between what you owed and the home’s value was either forgiven or remains unpaid.
Your property was sold through a short sale, and you arranged with your lender to pay a reduced amount compared to what was owed.
Box 6 of the 1099-C form contains a code indicating the category it falls under (you can refer to this IRS publication to interpret it). If you’ve paid off the debt and believe there’s an error, contact your lender to request a corrected form.
If the details are accurate, it means you owe taxes on the forgiven debt. You will need to file the 1099-C when you submit your tax return. The IRS provides more information on this form here, and you can find further details in MarketWatch’s full article.
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