When an individual has a debt that has been discharged, the amount that was discharged is generally treated as taxable income to the individual. Under certain circumstances, this amount can be excluded from income, and therefore not taxed. In order to report the exclusion, the taxpayer must file Form 982 with their tax return.

Why do I need to use Form 982?

Most times we can simply skip the explanation and explain that this simply triggers another form going into your tax return, Form 982 for Reduction of Tax Attributes Due to Discharge of Indebtedness. This is because the IRS does not seek to tax individuals who are truly in need of economic help.

Do you need to fill out Form 982 if you are insolvent?

Most people associate cancellation of debt with an insolvency scenario, but it is not always the case; if indeed insolvent, you simply need to provide some information to the IRS on the Form 982. But if your situation does not fall under the following categories then it will likely result in a higher tax bill.

Do you have to report canceled student loans to the IRS?

Lenders must report canceled debts of $600 or more to the IRS on a 1099-C form. The IRS estimates some 6.3 million 1099-Cs — for all types of debts, including student loans, credit cards, mortgages, etc. — were filed reporting CODI for the 2011 tax year.

What kind of form do I need for 1099-C?

If you have received one or more of the estimated 5.5 million 1099-C forms being sent to taxpayers this year, then you may find yourself wrangling with Form 982. That’s the form that taxpayers who qualify to have the income listed on the 1099-C form excluded from their debt should fill out and include with their return.

Is there a way to battle a 1099-C?

Form 982: The Way to Battle a 1099-C If you have received one or more of the estimated five and a half million 1099-C forms sent to taxpayers this year, then you may find yourself wrangling with Form 982.

How to report cancellation of debt on Form 1099-C?

The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C. “Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000.

How to enter Form 982 in TaxSlayer Pro?

To enter Form 982 in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select: To indicate that canceled debt being passed through on Form K-1 (Form 1065) is being excluded pursuant to IRC section 108 (1), from the Main Menu of the tax return (Form 1040) select:

What do you need to know about Form 982?

INFORMATION FOR… Form 982 is used to determine, under certain circumstances described in section 108, the amount of discharged indebtedness that can be excluded from gross income. None at this time.

When to report cancellation of debt as income?

If none of the exceptions apply, the cancellation of debt income is included in income in the year the debt is canceled. You must report any taxable canceled debt as ordinary income.The various forms to be used for reporting taxable income follows: Schedule C (Form 1040), if the debt is related to a nonfarm sole proprietorship;

What does qualified acquisition indebtedness mean on IRS Form 982?

Qualified acquisition indebtedness is (a) debt incurred or assumed to acquire, construct, reconstruct, or substantially improve real property that is secured by such debt and (b) debt resulting from the refinancing of qualified acquisition indebtedness to the extent the amount of such debt doesn’t exceed the amount of debt being refinanced.