How to Fill Out 1040X Debt Cancellation

The IRS considers some debts that are canceled to be taxable income.

The IRS considers some debts that are canceled to be taxable income. Individuals who default on a loan, such as a mortgage, are issued a Form 1099-C, Cancellation of Debt. This form is issued by the lender and must be included in your taxable income. Individuals who receive a 1099-C after they have already filed their taxes have to file a Form 1040X to amend their return to report this income.

Instructions

1. Enter your identifying information into the 1040X form: full legal name, Social Security Number, current address, phone number and the personal identifying information of any co-filer.

2. Indicate your filing status on line A, your tax return year on line B, and enter a detailed explanation of the reason you are amending your tax return. Explain in this section that you are amending your return due to the receipt of a 1099-C, Cancellation of Debt form.

3. Complete the Income and Deductions section to include the income from your 1099-C. Use your previously filed 1040 tax return and 1099-C to figure your adjusted gross income. Input this information onto line 1. Enter your standard deduction and exemptions to calculate your taxable income.

4. Copy the information for Tax Liability and Payments from the previously filed 1040 tax return. When your total payment amount is greater than your total tax, you receive a refund. When your total payment amount is less than your total tax, you need to make an additional tax payment.

5. Sign the form. Attach copies of the 1099-C documentation and include payment, if applicable, in the envelope with the 1040X form. Make any checks or money orders out to the United States Treasury.

6. Mail your amended tax return to the address indicated in the instruction booklet. This address will vary depending on your state of residence. Allow eight to 12 weeks for your 1040X amended tax return to be processed.

Tips & Warnings

• There are certain types of debt that are not taxable, such as debts discharged in bankruptcy, nonrecourse loans and certain farm debts.

References

• IRS: Home Foreclosure and Debt Cancellation
• IRS: The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Resources

• IRS: Form 1040X, Amended U.S. Individual Tax Return
• IRS: Instructions 1040X