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Yes, if you qualify. First, you have to determine up to what point you were insolvent. The worksheet can be found on page six of the following document: https://www.irs.gov/pub/irs-pdf/p4681.pdf (It is a PDF file). This worksheet is manual, and usually requires some investigation. Look at the discharge date on the 1099C and the amount of debt that was cancelled. The worksheet is based on the amount of attributes and debts you had on that date. You will need to see what your bank account, credit card debts, car debt, house debt, etc. were on that date (unpaid medical expenses, etc.) If your llabilities are greater than your assets, (do not include the debt amount canceled), you are insolvent. That is the number you will put in the 982 form under insolvency and goes with your return. If your insolvency is greater than your canceled debt, you have no canceled debt will not be taxable. I recommend mailing in the return to include both form 982 and the worksheet.
If your canceled debt is more that your insolvency, that is claimed as other income (line 21). In TurboTax you will see this as Miscellaneous Income.
1) Is the Statement of Insolvency the same as the "insolvency worksheet" or are they two distinct forms? I only see an option for Statement of Insolvency.
2) If yes to #1: Are the liabilities/Assets supposed to be their value on day before the Event/Cancel Date?
3) Do I include the (total amount) of the debt that was canceled in liabilities if the debt was defaulted/charged off/being pursed by a collection agency? e.g. 1000 was owed, then got defaulted and sent to Collections, who then paid settled for less than the total amount. Would you include the 1000 as a liability?
3) I completed Part I but am unsure how to complete Part II especially since my liabilities still exceeded my assets the day after cancellation. If that is the case, how do I explain that (as they say the number cannot be zero)?
3b) They say you can put the amount you wish to exclude (line 2) in line 10a of Part II, but what does that actually mean/affect your refund?
Any help would be appreciated
I have a 1099C for one credit card in the amount of $894. I am unemployed with many unpaid bills for ambulance companies that I cannot pay due to my present situation. Does it mean that I am insolvent and should use form 982.
Regards,
J youmans
Yes, being unemployed and having unpaid bills is definitely a sign of insolvency. Basically, if you were "insolvent" prior to getting the debt relief that generated the form 1099-C, then the debt would be excluded from income using the form 982.
Here is a link to the IRS discussion of "insolvency". You can also link to the instructions for form 982 from there, and scroll down to the instructions for line 1b.
Does filing a 982 for insolvency on canceled student loan debt have any effects on your credit or credit report?
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