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RD , Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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I need some help with filling out form 982. Im ...

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I need some help with filling out form 982. I'm insolvent and have received form 1099-C‘s. When filling out the 982 do I check line 1B, and just enter the total amount on line 2. Do I need to fill anything else out on this form. While reading information online, it said to just enter in 1B and total on line 2. Do not enter anything in part 2 or 3. But reading the IRS instructions is a little hard to understand. Can you provide me with the correct information. Also, do I need to attach the 1099-C's and send along with my returns. I have called the IRS to discuss this but they could not provide to much information. They did suggest that I attach a statement of total assets & liabilities to determine insolvency to support my numbers.
Submitted: 9 years ago.
Category: Tax
Expert:  RD replied 9 years ago.

Is this a cancellation of debt from business liabilities or is it personal?

Can you provide details on what debt is cancelled?

Customer: replied 9 years ago.
Reply to Renu V's Post: Personal
Customer: replied 9 years ago.
Credit card was cancelled.
Expert:  RD replied 9 years ago.

You will also have to fill in part II - reflecting basis reduction....

Here is an example from the Pub that will help you understand this-

XXXXX XXXXX is in financial difficulty, but he has been able to avoid declaring bankruptcy. In 1995, he reached an agreement with his creditors, whereby they agreed to forgive $10,000 of the total that he owed them, in return for his setting up a schedule for repayment of the rest of his debts.

Immediately before the debt cancellation, Tom's liabilities totaled $120,000 and the fair market value of his assets was $100,000 (his total basis in all these assets was $90,000). At the time of the debt cancellation, he was considered insolvent by $20,000. He can exclude from income the entire $10,000 debt cancellation because it was not more than the amount by which he was insolvent.

Among Tom's assets, the only depreciable asset is a rental condominium with an adjusted basis of $50,000. Of this, $10,000 is allocable to the land, leaving a depreciable basis of $40,000. He has a long-term capital loss carryover to 1996 of $5,000. He also has a net operating loss of $2,000 and a $3,000 net operating loss carryover from 1994. He has no other tax attributes arising from the current tax year or carried to this year.

Ordinarily, in applying the $10,000 debt cancellation amount to reduce tax attributes, Tom would first reduce his $2,000 net operating loss, next his $3,000 net operating loss carryover from 1994, and then his $5,000 net capital loss carryover. However, he figures that it is better for him to preserve his loss carryovers for the next tax year.

Tom elects to reduce basis first. He can reduce the depreciable basis of his rental condominium (his only depreciable asset) by $10,000. The tax effect of doing this will be to reduce his depreciation deductions for years following the year of the debt cancellation. However, if he later sells the condominium at a gain, the part of the gain from the basis reduction will be taxable as ordinary income.

Tom must file Form 982, as shown here, with his individual return (Form 1040) for the tax year of the debt discharge. In addition, he must attach a statement describing the debt cancellation transaction and identifying the property to which the basis reduction applies. This statement is not illustrated.

Link to Publication

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!


Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.


RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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