If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven or the property is abandoned or foreclosed, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender and/or you may be unable to pay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-A, Acquisition or Abandonment of Secured Property, or Form 1099-C, Cancellation of Debt.

If you received a Form 1099-A (PDF), or Form 1099-C (PDF), and the information is incorrect, contact the lender to make corrections.

Refer to IRS Publication 544, Sales and Other Dispositions of Assets, under the section "Foreclosures and Repossessions", for additional information and instructions.