982 Insolvency for 1099C

[Afrank1]

Is there a time limit on when this can be filed on a debt that IRS says I under reported? 

[GiseleD]

What year is your 1099-C from?

[MrPaul]

Hi I just got a 1099-c for 2019.  It was for a loan that I did with USAA to consolidate debt.  I have to get a debt settlement company involved to help me with my debt.

The amount reflected on the 1099-c is the amount that I did not pay to get the debt settled.  Can I file a 982 form?  What is required?

[DeanM15 · Accepted solution]

If you receive a 1099-C, Cancellation of Debt, you can file a Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, to reduce the taxable income in the cancellation of debt. 

Form 982 handles the following exclusions from gross income:

1. Debt canceled in a Title 11 bankruptcy case
2. Debt canceled to the extent insolvent
3. Cancellation of qualified farm indebtedness
4. Cancellation of qualified real property business indebtedness
5. Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2021

You can find the Form 982 here, the instructions here, and more information here. 

The most common exemption is the Debt Canceled To The Extent Insolvent. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the discharge. This is important as it includes the debt discharged by the 1099-C. You can read more about insolvency on page 5 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

To fill out Form 982 in TurboTax, you will need to do it in the Desktop CD/Download version on your computer. You will need to fill out Form 982 in Forms mode, there is no step by step walkthrough. 

@MrPaul

[jschleicher20]

I do not understand the form on how to fill it out. We do not own a house or we did not file Bk 

[LinaJ2020]

When you receive a Form 1099-C for cancellation of debt, and if it does not apply to your home or bankruptcy, you will need to file a Form 982 and the Insolvency worksheet ( click here: worksheet)

You will first need to enter your Form 1099C in the program.  Here are the steps:

In TurboTax desktop,

• Open your tax file
• To the right upper corner, in the search bar, type in "Form 982" and Enter
• Select "Jump to form 982"
• On screen, Tell Us About Your Canceled Debt, make your selection and choose Continue to proceed.

Then you will need to access Form 982 from the "Forms Mode" to manually enter information.  Here are the steps: 

• To the right upper corner, select Forms
• From the top, select Open Form, type in 982 and select Open Form  
• Manually enter information on the form

To see IRS instructions how to fill out the form, click here: https://www.irs.gov/instructions/i982

In most situations, if you receive a Form 1099-C from a lender after negotiating a debt cancellation with them, you'll have to report to the Internal Revenue Service as taxable income. Certain exceptions do apply.  According to the Mortgage Forgiveness Debt Relief Act in 2007, from 2007 to 2020, you can exclude up to $2 million in forgiven mortgage debt if you were married and filing jointly—up to $1 million for other filing statuses. Due to Covid, the CAA extends the exclusion of cancelled qualified mortgage debt from income for tax years 2021 through 2025.  For more information, click here: Cancellation of debt

@jschleicher20