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I received a 1099-C cancellation of debt from a credit card…

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I received a 1099-C for...
I received a 1099-C for a cancellation of debt from a credit card company. I am insolvent, and I read that there is an exception for this. How do I handle it on my tax return?
Submitted: 2 years ago.Category: Tax
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Answered in 3 minutes by:
3/8/2016
Tax Professional: Robin D., Senior Tax Advisor 4 replied 2 years ago
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 17,861
Experience: 15years with H & R Block. Divisional leader, Instructor
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Hello

If you can use the insolvent exception you would need to complete Form 982. You were insolvent if your liabilities (the total amount of all debts) were more than the fair market value (FMV) of all of your assets immediately before the discharge.

You can only exclude the amount of debt equal to the extent that you were insolvent.

Example: During the tax year, you were released from your obligation to pay back a credit card debt in the amount of $5,000. At the time of the discharge, the Full Market Value (FMV) of all of your assets totaled $7,000 and your total liabilities totaled $10,000. Therefore, you were insolvent to the extent of $3,000 ($10,000 in liabilities minus $7,000 in FMV of assets).

You would report the $2000 on line 21 of your return and file the form 982 to show your reason for not including all.

If you can exclude all then you file the form 982 with your return and do not include any of the cancelled debt.

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