It depends. As of right now, excluding canceled debt is not allowed, but it is possible that Congress will reinstitute the provision, as shown in the following FAQ: https://ttlc.intuit.com/replies/3300645
If the provision is renewed, insolvency is complicated because you have to determine it from the date the debt was canceled. In this situation, your 1099-C mentions the date, and you need to go back to that date and fill out an insolvency worksheet. See the following link: Insolvency Worksheet - Publication 4681--Canceled Debts, Foreclosures, Repossessions, and Abandonmen... (The link opens a PDF file. Once open, go to page 6 for the worksheet).
The purpose of the form is to determine how much debt you had in comparison to your assets at the time the debt was canceled. Do not include the canceled debt on the worksheet, and if you are filing a joint return with your spouse, only calculate your debts and assets, do not include your spouse's (but yes include your share of any joint debts or assets). You are insolvent to the extent your debts are greater than your assets.
Then, you may exclude from your canceled debt income the amount of your insolvency.
Example: At the point a $5,000 credit card debt was canceled, you had $8,000 of other debts and $5,000 in other assets. You were insolvent by $3,000. Your canceled debt income is reduced by $3,000, and $2,000 is included on your tax return.
Insolvency would be reported on Form 982, but the IRS may ask you to submit your Worksheet to show your calculations.
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