If you have a Form 1099-C (Cancellation of Debt) related to a 2011 bankruptcy, you must use a TurboTax Desktop program (Home & Business or Premiere) to properly file with Form 982 and exclude your cancellation of debt from your taxable income.
The TurboTax Desktop version allows you to go to "Forms Mode" to enter the bankruptcy exception, which is necessary for debt discharged in a Title 11 bankruptcy. To get to Forms Mode, you will click on Forms at the top tight of your TurboTax screen. Your forms from you tax return will appear in the left panel of your TurboTax screen .
To switch to a desktop program in TurboTax you can see this article: How do I switch from TurboTax Online to TurboTax Desktop?
The IRS has very strict rules for determining whether canceled debt is taxable or not. This is a very complex issue and you should consult a tax professional if you are considering filing Form 982 to exclude of your taxable debt.
The exceptions to determining a canceled debt as taxable include:
- Debt discharged under Title 11 bankruptcy (including chapters 7, 11 & 13)
- Canceled debt was on qualified farms and real business property
- Debt was canceled due to insolvency (to qualify, you must demonstrate your total debt exceeded the Fair Market value of all of your assets right before the debt was canceled. Use Insolvency Worksheet in IRS Pub 4681 to determine if you were insolvent)
You can easily get to the screens to enter your Form 1099-C in TurboTax as follows:
- Click on "Search" in the upper right of your TurboTax screen.
- Type "Form 1099-C" in the search bar
- Click on the link "Jump to Form 1099-C"
- Answer the follow-up questions regarding your discharged debt to determine if it is excludable.
To get Form 982 to generate in TurboTax you will follow the steps listed below.
- In your TurboTax Desktop, click on Forms to switch to Forms Mode
- In your left panel of your TurboTax Screen at the top right above "Forms in my Return" click on the open forms icon.
- Add Form 1099-C
- Enter your Form 1099-C information on Form 1099-C in your right panel of your TurboTax screen
- In your left panel Click on Canceled Debt Worksheet
- Complete the section that applies to you.
- If you are claiming insolvency, you will have to click on the QuickZoom button to complete the statement of insolvency
- Then select Form 982 in your left panel and complete the sections that apply to you
- You can then click on Schedule 1 in your left panel to make sure your debt was excluded
Click here for Guide to Debt Cancellation and Your Taxes
Click here for Instructions for Form 982
Click here for How do I enter a 1099-C?
Click here for How do I report excludable (non-taxable) canceled debt?
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