The two forms you may get
- Form 1099-A: sent when the lender takes the home through foreclosure or a deed in lieu. It shows what you owed and the home's fair market value, which you use to work out any gain or loss.
- Form 1099-C: sent when a lender cancels $600 or more of debt. If the foreclosure and the cancellation happen in the same year, you may get only a 1099-C.
If a form is wrong, or never comes, you still have to report the correct amount.
Why forgiven debt can be taxed
Canceled debt is generally taxable income unless an exclusion applies. If you were personally liable for the loan (recourse debt), you are treated as selling the home for its fair market value, and forgiven debt above that is income. If you were not personally liable (nonrecourse debt), there is no canceled-debt income, only a gain or loss on the sale. Your state's page says whether lenders there can come after you for the balance.
The main home exclusion has expired for most 2026 cases
The exclusion for forgiven debt on your main home (qualified principal residence indebtedness) covers only debt forgiven before January 1, 2026, or forgiven later under a written arrangement made before that date. For a foreclosure, short sale or principal reduction agreed in 2026, it generally no longer applies.
Exclusions you may still use
- Insolvency: if your debts were more than the value of everything you owned just before the debt was canceled, you can exclude canceled debt up to that shortfall.
- Bankruptcy: debt canceled in a bankruptcy case is not taxable.
- You claim an exclusion on IRS Form 982, filed with your return.
Get help with the return
This is general information, not tax advice. Talk to a tax professional before you file, especially if you sold for less than you owed or got a 1099-C. Read IRS Publication 4681 for the full rules and worksheets.
How much time do you have? It depends on your state.
See the foreclosure timeline, deadlines and free local help for the state where the home is.
Common questions
Is a short sale taxed differently from a foreclosure?
The same rules apply. If debt is forgiven, it is generally income unless an exclusion applies, and the sale itself can produce a gain or loss. Some programs release you from the remaining balance (Fannie Mae does in many short sales), and that release is a cancellation of debt for tax purposes.
I got a 1099-C but I was broke at the time. Do I owe tax?
Maybe not. If your total debts were more than the value of everything you owned just before the cancellation, you can exclude canceled debt up to that amount by filing Form 982. Keep a list of your debts and assets as of that date.
Keep reading
- What to do firstThe earlier you act, the more options you have. These are the first six things to do, in order, whether you are about to miss a payment or are already a few months behind.
- A sale date is setA sale date means time is short, not that it has run out. Each option below has its own cutoff, so the order you act in matters. Start today.
- Avoid foreclosure rescue scamsPeople facing foreclosure are a target. Federal law bans most upfront fees for mortgage relief, so any company that asks to be paid before you have an offer from your servicer is breaking the rules.
- Your federal rightsFederal rules (Regulation X) set the floor in every state. They do not force your servicer to approve any option, but they control when it can start a foreclosure and how it must handle your application.
- Help by loan typeYour servicer collects the payments, but the rules for what it can offer you come from whoever owns or insures the loan. Find that out first.