If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the canceled 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. 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.

File Form 1099-A, Acquisition or Abandonment of Secured Property, for each borrower if you lend money in connection with your trade or business and, in full or partial satisfaction of the debt, you acquire an interest in property that is security for the debt, or you have reason to know that the property has been abandoned. You need not be in the business of lending money to be subject to this reporting requirement.

If, in the same calendar year, you cancel a debt in connection with a foreclosure or abandonment of secured property, it is not necessary to file both Form 1099-A and Form 1099-C, Cancellation of Debt, for the same debtor. You may file Form 1099-C only. You will meet your Form 1099-A filing requirement for the debtor by completing boxes 4, 5, and 7 on Form 1099-C. However, if you file both Forms 1099-A and 1099-C, do not complete boxes 4, 5, or 7 on Form 1099-C.

• Multiple owners of a single loan – If there are multiple owners of undivided interests in a single loan, such as in pools, fixed investment trusts, or other similar arrangements, the trustee, record owner, or person acting in a similar capacity must file Form 1099-A on behalf of all the owners of beneficial interests or participations. In this case, only one form for each borrower must be filed on behalf of all owners with respect to the loan. Similarly, for bond issues, only the trustee or similar person is required to report.
• Governmental unit – A governmental unit, or any of its subsidiary agencies, that lends money secured by property must file Form 1099-A.
• Subsequent holder – A subsequent holder of a loan is treated as a lender and is required to report events occurring after the loan is transferred to the new holder.
• Multiple lenders - If more than one person lends money secured by property and one lender forecloses or otherwise acquires an interest in the property and the sale or other acquisition terminates, reduces, or otherwise impairs the other lenders' security interests in the property, the other lenders must file Form 1099-A for each of their loans. For example, if a first trust holder forecloses on a building, and the second trust holder knows or has reason to know of such foreclosure, the second trust holder must file Form 1099-A for the second trust even though no part of the second trust was satisfied by the proceeds of the foreclosure sale.

There are several exceptions to filing a 1099-A form with the IRS. Here are some of the most common:

Debt amount is less than $600: If the outstanding debt on the secured property is less than $600, you are not required to file a 1099-A.

Debtor is not engaged in a trade or business: If the debtor is not engaged in a trade or business, you are not required to file a 1099-A. This includes individuals who are not self-employed or who do not use the property for business purposes.

Debt is not discharged in connection with a foreclosure or abandonment: If the debt is not discharged in connection with a foreclosure or abandonment, you are not required to file a 1099-A. This includes situations where the debtor sells the property or pays the debt in full.

Property is a qualified residence: If the property is a qualified residence, you are not required to file a 1099-A. A qualified residence is a dwelling unit that is used by the taxpayer as a principal residence or a second home.

Section 409A deferrals: If the debt was deferred under Section 409A of the Internal Revenue Code, you are not required to file a 1099-A. This includes situations where the debtor is a public utility or a railroad.

Excess golden parachute payments: If the debt was incurred in connection with an excess golden parachute payment, you are not required to file a 1099-A. A golden parachute payment is a large payment made to an executive upon termination of their employment. Nonqualified deferred compensation: If the debt was incurred in connection with nonqualified deferred compensation, you are not required to file a 1099-A. Nonqualified deferred compensation is compensation that is earned but not paid until a later date.

For more information on the exceptions of 1099-A refer IRS official page