Cancellation Of Debt Form 1099-c

[Dasco]

s About Taxes)/Cancellation of Debt Form 1099-C Advertisement Expert: Randall Klein, MBA, EA - 2/22/2011 Hello. My girlfriend recently received a cancellation of debt form 1099-C in the mail. It looks similar to a W2 form, and is from an old debt she never paid in full. The amount of debt canceled is $1329. In box 5(was borrower personally liable for repayment of the debt)the yes box is checked. We have never seen anything like this before and have no idea what it means. Would you please shed some light on this subject for us?

Thank You, Jax

[Brookson]

Assuming you were not insolvent or in bankruptcy at the time the debt was discharged, you have "phantom" income.

Cancelled debt is taxable income, so the amount goes on Line 21 of your Form 1040(You cannot use 1040-EZ). You will pay income tax on the amount. The creditor is basically telling the IRS that your girlfriend "got this money from us and we don't expect her to pay us back". That is considered "income", just not income from working.