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How do I complete Form 982, Part II? Information: 5 1099-C…

Customer Question
How do I complete Form...
How do I complete Form 982, Part II?
Information:
5 1099-C for cancelled credit card debt (well, I received 3, but I am using inferred information to complete the other 2; I was told by Citi it can take 3 years to generate a 1099-C)
I own a house, 2 cars, etc.
1099 C dates, assets, and liabilities:
2/13 = assets-----116860 liabilities ----322244 Excess= -205384
3/31 = assets----114237 liabilities ----326602 Excess = -212365
5/14 = assets----113136 liabilities ---315049 Excess = -201913
5/15 = assets ----119754 liabilities ---306039 Excess = -186285
11/27 = assets 118439 liabilities ---301160 Excess = -182721
I believe the only thing I have to do for part II is put 0 in 10a since I am in the negative? I am confused, however, because everything I read mentions reducing the basis for the property that I do own.
Submitted: 2 years ago.Category: Tax
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Answered in 13 minutes by:
3/7/2016
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,418
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi, a couple of things; yes, if you have no real property (`

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

...

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

Sory JustAnswers system keeps refreshing for some reason ... let me re-state that (hopefully) in total... Just a sec

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

First, if you have no real property or other capital assets in which to reduce your basis, that would be correct

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

Second, if they were going to cancel the debt in 2015, they have to provide the 1099 by Feb 2nd of the year after the tax year in which it was received...

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SO you can't assume that it has even been forgiven

...

If they haven't written it off and taken their own deduction, they cannot yet send the 1099

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

What they are likely telling you is that they'll make that decision later OR that, at the least, they have decided NOT to write it off (and forgive the debt) for three years

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Customer reply replied 2 years ago
Well, I completed a debt settlement with them in Feb. and March of 2015. I made 2 payments and the rest of the balance was forgiven. I have paperwork documenting this. I called the bank when I did not receive the 1099-C (I called March 1st). They said they have not sent them yet and may not do so for up to 3 years. They verified the exact amount settled and gave me their tax ID number; they stated that is all I need to report it. I don't know what their issue is, but I know I am supposed to report any canceled debt regardless.
Customer reply replied 2 years ago
My property consists of my house, 2 cars, and the furnishings in my house.As you can see above, my liabilities very much outweigh my assets. Any advice on Part II of 982?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

All I can say there is that they are either subject to some VERY hefty fines or are misleading you about the cancellation of the debt.

...

On the 982 ...

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If a taxpayer qualifies for the bankruptcy, insolvency or qualified farm indebtedness exclusion, then the amount of the exclusion must be applied to reduce the taxpayer’s “tax attributes” in the order listed

• Net operating loss (NOL) of the year of the debt discharge and any carryover to that year;

• General business credit carryovers to or from the year of the debt discharge;

• Minimum tax credit as of the beginning of the year

following the year of the debt discharge;

Capital loss of the year of the debt discharge and any carryover to that year;

• Basis of property;

• Passive loss carryover from the year of the debt discharge; and

Foreign tax credit carryovers to or from the year of the debt discharge

...

So what this does is limit the value of any losses you might have AND lower your basis in the assets you do have so that you will not benefit as much when sold at a future date (will have the effect of increasing gain)

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

Taking you through this item by item is beyond the scope of this chat forum, but generally, losses and basis are reduced by the excluded COD income dollar-for-dollar, tax credits are reduced $1.00 for every $3.00 of COD income.(1) The reduction of these items is made after the income tax for the taxable year of the discharge has been determined.(2)

...

(1) IRC §108(b)(3)

...

(2) IRC §108(b)(4)

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

What IRS is really trying to do there is to ensure that Form 982 doesn’t actually eliminate future tax liability. Often you’re required to change the basis (purchase price) of your remaining assets. That can mean higher gains or lower losses when you sell those assets. So the IRS gets another shot at you in the future.

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You may want to sit down with a CPA or Tax attorney to do this. Most software packages DO NOT handle that aspect well, if at all

...

Tax attributes is the least logical aspect of Form 982. One way to tell if you have a good insolvency CPA/Atty is if he/she talks about future tax consequences.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

Hi Dan,

...

I’m just checking back in to see how things are going.

...

Did my answer help? If so, I'd really appreciate a positive rating (using the rating request, faces, or stars on your screen)

...

That's the only way JustAnswer will credit me for the work here.

..

Let me know…

...

Thanks

Lane

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