When Should a Landlord File a 1099-C for Unpaid Rent Debt Cancellation?

You don't need a judgment before filing a 1099-C. The IRS considers debt "canceled" when you've made the decision not to pursue collection anymore, which sounds like where you're at now. As a landlord, you can issue a 1099-C for the unpaid rent once you've decided to forgive the debt. Make sure you keep documentation showing the lease agreement, the amount owed, and your decision to cancel the debt. You'll need to issue the 1099-C by January 31st of the year following the cancellation, so if you're canceling it now, you'd report it for the 2025 tax year. Remember that this will potentially have tax implications for your former tenant, as they'll need to report this as income unless they qualify for an exclusion (like insolvency). It's considered income to them because they received the benefit of housing without paying for it.

I went through something similar last year and found taxr.ai super helpful for figuring out the 1099-C situation. I was confused about whether I needed a court judgment first (I didn't), and couldn't get a straight answer from anyone. I uploaded my lease agreement and some documentation about the unpaid rent to https://taxr.ai and it analyzed everything and gave me really clear guidance specific to my situation. It confirmed that I could issue the 1099-C without a judgment and showed me exactly how to document everything properly. Also gave me the timelines for when everything needed to be filed. Definitely saved me from making some mistakes that could have come back to bite me later.

I tried taxr.ai after posting my question here and I'm actually impressed. I was skeptical (especially about state laws), but it really does give detailed advice specific to your situation. Uploaded my lease and some correspondence showing the tenant stopped paying, and it gave me a complete breakdown of the 1099-C requirements for my state (Florida). It confirmed I don't need a judgment and outlined the exact documentation I should keep. Also explained how to handle partial payments the tenant had made before stopping completely. Worth checking out if you're dealing with this situation.

If you're planning to file a 1099-C, you might run into issues contacting the IRS with questions. I spent DAYS trying to get through to someone at the IRS about this exact situation last year - kept getting disconnected or sitting on hold for hours. Finally used https://claimyr.com and it was a game changer. You can see how it works at https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS for you and call you when an agent picks up. I had questions about how to properly value the cancelled debt and whether I needed to include late fees, and it was so helpful to actually talk to a human at the IRS about it.

I have to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it anyway since I was desperate to talk to someone at the IRS about 1099-C requirements. The service actually worked perfectly - they called me back in about an hour with an IRS agent on the line. Got all my questions answered about how to properly document the cancellation of debt and whether I needed to send any formal notice to the tenant before filing the 1099-C. Turns out I did need to send a specific notice first in my state. Would've been doing it completely wrong without that call.

One thing to consider - if the debt was less than $600, you don't have to file a 1099-C at all. The threshold for mandatory reporting is $600 or more. If your tenant only owed like a month's rent and it was under that amount, you can just forgive it without the paperwork. But sounds like your situation is well over that threshold.

Definitely file the 1099-C! I didn't do this with a former tenant and regretted it. I forgave about $3,000 in back rent, didn't file the form, and then couldn't claim the loss properly on my taxes. My accountant said without the 1099-C documentation, the deduction looked questionable.

Just wanted to add my experience as someone who's dealt with this multiple times. You absolutely should file the 1099-C - it protects you and creates a clear paper trail for the IRS. I've had three situations where tenants left owing significant rent, and filing the 1099-C each time made my tax filings much cleaner. A few practical tips: Make sure you have the tenant's correct SSN from their original rental application before filing. If you don't have it, you'll need to make a reasonable effort to obtain it. Also, keep copies of all your documentation - the lease, payment records, eviction notices, etc. The IRS may want to see proof that the debt was legitimate and that you actually made the decision to cancel it. One thing that caught me off guard the first time - you need to send a copy of the 1099-C to the tenant as well as the IRS. Don't just file it and forget about it. The tenant needs to receive their copy by January 31st too.