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Hi from Just Answer. I'm PDtax, and will assist.
Sorry, had to take a call.
I would report the 401(k) balance at FMV, that is, realizable value after the 10% penalty and taxes due on the account if you were to liquidate it. A $40,000 401(k) might only be worth $26,000 once you pay the 10% penalty and fed/state taxes at 25%. Your rate may be different.
One thing I can add that most people forget is the amount of income taxes, Fed and state, due as of the date of debt relief. A tax due at that date should be counted against assets owned at that date. Most folks don't count that debt.
We have actually calculated a tax as of that date to support a debt inclusion for the worksheet.
This calculation is worth having a tax pro assist with your tax prep. They will have access to all your other figures and be able to advise. Take my suggestions to a pro and let them assist. 982 is not a form I would recommend anyone prepare themselves, and the worksheet has so little guidance that valuation issues and opportunities are things tax pros think about regularly.
Thanks for asking at Just Answer. Please accept my response, rating my assistance, once you are satisfied. I'm PDtax.