U.S. · Tax forms
1099-C box 5 personally liable.
One checkbox that separates recourse from nonrecourse debt.
An X in box 5 means you were personally liable for repaying the debt when it was created or last modified. The IRS calls that recourse debt; all other debt is nonrecourse. The distinction matters: with recourse debt a lender's write-off may be ordinary canceled-debt income, while nonrecourse debt generally produces gain or loss on the property, not cancellation income.
Look up a debt situation
Result
Recourse versus nonrecourse under Publication 4681
| Situation | Treatment | Where it goes |
|---|---|---|
| Box 5 checked: foreclosure or repossession, debt above value | The lender's foreclosure is treated as a sale of the property. Gain or loss is FMV minus your adjusted basis. If the lender forgives debt above the FMV, that excess may be ordinary canceled-debt income. | Gain or loss on the property (its character depends on the property), plus Schedule 1 line 8c for the excess if nonbusiness. |
| Box 5 blank: foreclosure, debt above value | The whole nonrecourse debt is treated as the amount realized. No ordinary cancellation income. | Gain or loss only: the difference between the debt plus other proceeds and your adjusted basis. |
| Box 5 checked: abandoned property, debt canceled | You realize ordinary income equal to the canceled debt, unless an exception or exclusion applies. | Schedule 1, line 8c for nonbusiness debt. |
| Box 5 blank: abandoned property | You may realize gain or loss but have no cancellation of indebtedness income. | Gain or loss reporting only. |
| Box 5 blank: early payoff discount | Not canceled-debt income unless you keep the collateral and the lender either discounts the debt for early payment or agrees to a loan modification that reduces principal. | Only in those two cases, see Discounts and Loan Modifications in Pub. 4681. |
| Box 5 blank but you were liable | The box reflects liability when the debt was made or last modified; check your loan papers. | Ask the creditor to correct the form if it is wrong. |
What the form says
The creditor's instructions say to enter an "X" in box 5 if the debtor was personally liable for repayment at the time the debt was created or, if modified, at the time of the last modification. Publication 4681 defines recourse debt as debt for which you are personally liable and says all other debt is nonrecourse.
Why the checkbox changes the tax
Publication 4681 says that if you are not personally liable, you do not have ordinary income from cancellation unless you retain the collateral and the lender discounts the debt for early payment or reduces principal in a workout. So a blank box 5 and a "canceled" amount in box 2 are a signal to look hard: for a nonrecourse foreclosure the entire debt counts as the amount you realized on the property; the result is a gain or loss depending on whether the debt was more or less than your adjusted basis.
When to question box 5
If box 5 is checked but your loan was nonrecourse, or the reverse, the tax treatment changes. The creditor, not the IRS, issues a corrected form. Keep the loan agreement showing who was liable. A tax preparer can help with the choice between reporting the property disposition and any canceled debt, and with Form 982 exclusions.
Where next
Box 2 and the insolvency exclusion are covered under box 2. Box 6 lettered events are in the identifiable event codes.
Sources
- Instructions for Forms 1099-A and 1099-C: Box 5, Was Borrower Personally Liable.. Read November 2, 2026. (revised 04/2025; IRS page last reviewed April 30, 2026.)
- Publication 4681 (2025): Recourse debt and nonrecourse debt; Foreclosure or repossession; Abandonment.. Read November 2, 2026. (IRS page last reviewed April 30, 2026.)
Line and box numbers are those printed in the IRS instructions named above and can change from year to year; match each box by its label.
Frequently asked questions
What does box 5 mean on a 1099-C?
An X in box 5 means the debtor was personally liable for repaying the debt at the time it was created or last modified.
What is recourse debt?
Debt for which you are personally liable. The IRS treats all other debt as nonrecourse.
Is nonrecourse canceled debt income?
Generally not as cancellation income. Publication 4681 says you do not have ordinary cancellation income on a nonrecourse debt unless you keep the collateral and the lender discounts it for early payment or reduces principal in a workout.
What happens in a foreclosure on a nonrecourse loan?
The entire unpaid debt is treated as the amount realized on the property, so you may realize a gain or loss measured against your adjusted basis, with no ordinary cancellation income.
What if box 5 is wrong?
Ask the creditor to correct it. The tax treatment depends on whether you were actually personally liable.
Not tax advice
This page summarizes IRS instructions, mostly written for the people who prepare the form, and is not tax, legal or financial advice. The payer, a CPA or an enrolled agent can confirm what a box or code means for your return. Everything runs in your browser; nothing you enter is sent anywhere.