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The first step would be to identify the amount of debt forgiven - from 1099C. For instance - $1500The second step to determine your insolvency using the worksheet - the difference between the two (liabilities minus assets) - for instance - $5000.Then - you will compare these amounts - and if your insolvency is more than the amount of debt forgiven - you will
I have done both step one and two.
My insolvency is more than the amount of debt forgiven
you will use the full amount to report on form 982 lines 4 and 10a.In our example - because $1500 is less than $5000 - you will report $1500 on form 982.
That is correct - because your insolvency is more than the amount of debt forgiven - report the full amount of debt forgiven on form 982.
That means - the full amount of debt forgiven is excluded from taxable income because of your insolvency.
so the full amount on 982 and not just the amount that the IRS reporting as the Income Net Difference?
because the Income Net Difference is less than my insolvency
The full amount.You would exclude a partial amount ONLY if your insolvency were less than the amount of debt forgiven.But that is not your case - you wrote "My insolvency is more than the amount of debt forgiven" - that is a key for determination - so you report the full amount on form 982 and nothing on form 1040.
I understand. When I fax the forms into IRS, which forms other than 982 do I send?
The amount of insolvency determines how much you may exclude.If your debt forgiven were $1500, but insolvency were $1000 - you would be able to exclude only $1000 - and $500 would be your taxable income.But your situation is different.Form 982 should be attached to your 1040.If you already filed your tax return - you need to amend it using 1040X (even all amounts are same) and attach 982.
I understand. However, I received a notice from the IRS in regards XXXXX XXXXX year 2011. This is the subject matter we are discussing today.
Did you file your 2011 tax return?
So - you need to use form 1040X - http://www.irs.gov/pub/irs-pdf/f1040x.pdfTake all numbers from your 2011 tax return.In the header - check the box - This return is for calendar year 2011.In part III - explain the reason - additional form 982 because of insolvency.Attach the form 982 - and I suggest to attach the worksheet - just in case to avoid possible questions from the IRS.Mail all to the address in the notice you received.
Great! Thanks very much for your answers and taking the time to explain it all to me Lev. I really appreciate it.
I think I will have to fax it in, because they put my deadline on the 22nd.
My goal is to provide EXCELLENT service.I really appreciate your warm words.Please be sure to come back for all your tax related issues.
Thank you! Have a great weekend!
I suggest to fax AND to mail via certified mail - because your signature is required to 1040X.
Be sure to keep copies!
Thanks very much for that! I'll keep copies too.
Have a good one!
You are very welcome.