To qualify for the insolvency, you must show that all of your liabilities (debts) were more than the Fair Market Value of all of your assets immediately before the cancellation of debt.
To show that you are insolvent and are excluding your canceled debt from income, you must fill out Form 982. Although the form is available in Turbo Tax, it is not available on line. You would have to use a cd/download and fill out the form manually, there is no interview questions for this.
I recommend that you first read the following links and fill out the insolvency worksheet and the form from the IRS website. Once you have completed it, purchase the cd/download to enter the forms' information into the software.
Please refer to page 5 for insolvency explanation and page 8 for insolvency worksheet:
https://www.irs.gov/pub/irs-pdf/p4681.pdf
Form 982 and its instructions:
To qualify for the insolvency, you must show that all of your liabilities (debts) were more than the Fair Market Value of all of your assets immediately before the cancellation of debt.
To show that you are insolvent and are excluding your canceled debt from income, you must fill out Form 982. Although the form is available in Turbo Tax, it is not available on line. You would have to use a cd/download and fill out the form manually, there is no interview questions for this.
I recommend that you first read the following links and fill out the insolvency worksheet and the form from the IRS website. Once you have completed it, purchase the cd/download to enter the forms' information into the software.
Please refer to page 5 for insolvency explanation and page 8 for insolvency worksheet:
https://www.irs.gov/pub/irs-pdf/p4681.pdf
Form 982 and its instructions:
I received a 1099C and am about to fill out form 982 (insolvency worksheet). I have already purchased the Turbo Tax cd. After I get this filled out, where am I able to enter this info. in Turbo Tax? Would someone please help me with this? I have to file my taxes for 2017 by Jan 15, 2020!
Terri
TurboTax does not have an interview for form 982, which is where you report your insolvency exception.
To get to form 982,
Once in Form mode,
This will open form 982; however, you will need to complete it yourself. This is why TurboTax advises you in this situation to seek the help of a local tax pro.
Regarding the insolvency exclusion... it states that you calculate your liabilities and assets immediately before the cancellation of debt. So I would awesome the debt that has been cancelled would be included in the liabilities. Is this correct? I'm hoping so! Also, do you know if the same applies for Massachusetts state tax?
Yes, the debt cancelled would be included in the liabilities to determine your insolvency.
When you prepare the Massachusetts return in TurboTax, the federal income will be used as your Massachusetts income starting point. So, you will start out with the debt forgiven.
I suggest you work through the program and see if there is any mention of adjusting the federal income for the debt forgiven. In other words, follow the instructions in the state program and you should come up with the correct result.
So if my end amount is (-) than I am not insolvent? It has to be a positive number? Can life insurance be considered a liability? It's confusing how they say subtract this number from this and then if it's negative you are insolvent according to the website.
Your question is if my liabilities exceed my assets and a negative result occurs are you considered insolvent. The answer is yes, based on the IRS worksheet and your numbers. Life insurance would fall under the category of 'Other liabilities' on the worksheet.
I got the turbotax CD version. So I understand the exact process here for multiple 1099-C's where I was insolvent on different dates:
- Skip the interview question about cancelled debt
- For each cancelled debt / date:
- Fill out a 1099-C
- Fill out an insolvency worksheet
- Fill out form 982
Is this correct? If not can you help me get the correct order.
Thank you
That is correct. For each 1099-C that is not for debt forgiven for a primary residence. You need to complete an insolvency worksheet to determine your insolvency immediately prior to the forgiveness and immediately after for each case. That amount then gets entered on Form 982 for that debt discharge.
I filled out the form 982 in the forms section; however it is not adjusting the total amount that I owe at the top of the screen and turbo tax is asking me to submit the payment including the taxes I would owe on the income from the 1099-C.
How should a proceed to pay the proper amount of taxes when I file my return? Since there isn't an interview question and this form is not part of the standard turbo tax program how to it to use the data from the 982 form when calculating my tax burden?
@MaxU If you entered the 'Exclusion for Insolvency' on the Cancelled Debt Worksheet (screenshot), you should not see this amount included in 'Other Income' on Schedule 1, Line 8 (screenshot).
You are correct that the Refund Meter may not change; however, the amount will be excluded on your Form 1040 total income.
Hello there ... I've been following and reading the replies ...
I understand the basis for the insolvency worksheet, and then the form 982. I'm confused on how to do the 2nd one, and those thereafter. Unfortunately, I have about 8 to do.
I'm wondering if this gets easier on the 2nd one? Would the form basically stay the same, except that now I will be reducing my liabilities by the amount of total debt from 1099-C #1. And then after the 2nd Form 982, the 3d 982 form, would be total liabilities, which will now have been reduced by total debts cancelled from #1 and #2? Is it this way that the rolling reduction of liabilities continues on down? Also, as I updated the 982 form each time, do I then have to update the Worksheet?
OR do I do multiples 982s, and then enter the total 1099-C one time on Turbo Tax?
Thank you for the guidance!
I was also struggling with this form. But Here's the guidance from the IRS 2021 publication 4681 for when you were insolvent by the amount higher than the canceled debt:
When completing his tax return, Greg checks the box on line 1b of Form 982 and enters $5,000 on line 2. Greg completes Part II to reduce his tax attributes as explained under Reduction of Tax Attributes, later. Greg doesn't include any of the $5,000 canceled debt on Schedule 1 (Form 1040), line 8c. None of the canceled debt is included in his income.
So my understanding is, you don't even need to include any of the info from your 1099-c as long as you fill out form 982 properly. This way, your income and refund meter will reflect things correctly. Hope it helps.
I need to file two 1099-C forms from two different creditors
It depends. You must use the Insolvency Worksheet to see if you qualify, it is included in the publication link below.
If you do not qualify for insolvency or you the cancelled debt was not included in bankruptcy, then the amount reported is taxable.
I have the same question essentially. With this clarification: my 1099C’s show the discharge of debts on different dates throughout the year because it took me awhile to work thru the settlements. The worksheets I completed for each discharge date show I was insolvent each time. However I’m less insolvent as the year progresses. A couple other past threads here have said to only submit a single 982, but a single 982 can’t reflect a factual and favorable outcome in my case.
please confirm it’s acceptable and expected to submit multiple 982s. One for each cancellation of debt discharge date.
thanks
Form 982 is completed and filed with your tax return in order to determine the amount of discharged indebtedness that may be excluded from your income. Since you would only file one income tax return that may include the discharged debt, only one Form 982 will be filed to cover the entire tax year.
I am married and received several 1099-Cs for loans taken out in my name only, prior to 2024. I did not live with my spouse all year and am wondering if I am able to exclude this income based on insolvency if I file as Married Filing Separately. I definitely meet the criteria for Insolvency. Thank you.
To qualify for the insolvency, you must show that all of your liabilities (debts) were more than the Fair Market Value of all of your assets immediately before the cancellation of debt.
To show that you are insolvent and are excluding your canceled debt from income, you must fill out Form 982. Although the form is available in Turbo Tax, it is not available in TurboTax Online. You would have to use a TurboTax Desktop product and fill out the form manually in FORMS mode. There are no interview questions for this situation.
You can Efile with Form 982; however, save the Form 982 Worksheet and your Form 1099-C's for documentation (don't enter them in TurboTax) if the worksheet shows you qualify for Insolvency), along with any other related documentation.
Here's more info on Debt Cancellation and Taxes.