Form 982 insolvency, 1099-c debt cancellation.

Using DELUXE, desktop version on Turbotax.  I am positive that prior to cancellation of debt, I was insolvent by MORE than the amount of the cancelled debt, however can't figure out how to have the system understand this and 'exclude' the 1099-c 'cancelled debt' income....
  • Apparently there is no way in TT to do this and this is a major flaw with turbotax. I have seen a lot of responses by "tax experts" on this but they are beating around the bush but do not tell the straight answer. Atleast I have not found a way yet to make TT realize that it should not count as "income" my cancelled debt due to Bankruptcy on 1099-C even when I have manually entered all info on FORM 982 (on desktop version).
  • I filed my taxes electronically then received a 1099c.  I guess iI need to file an amended return and include form 982.  I also will fill out an Insolvency work sheet and will end up not owing any additional taxes.  My question is:  Do I need to file the worksheet with form 982 and can I file the amended return electronically of do I need to file manually?
  • Last year, in my case, I did file the insolvency worksheet along with form 982.  It was filed electronically through Turbo Tax.
  • We filed our taxes and the next  week received a 1099-C which is marked with the bankruptcy code (since it was discharged in bankruptcy).  So if I am understanding this correctly, I need to amend the 2012 taxes to include form 1099-c and form 982?
  • When you received the 1099-C, the IRS got a copy to.  So even though you are fully discharged in bankruptcy, you need to explain to the IRS why the 1099-C amount should not be included in your income.  That is why you need Form 982.  Here are a couple of links that help explain:
  • I get needing a Form 982 but do I have to amend my taxes to add the 1099-C and Form 982 OR can I just send the Form 982 in?  I had one CPA tell me not to worry about it since the 1099-C is coded bankruptcy and another CPA told me to file a Form 982.  I just want to make sure I do this correctly and I got 2 different answers from CPA's.
  • You can only get the 982 form if you are using the desktop version, not the internet version of Turbotax.  Deskto has a Forms Icon that gives the option of accessing forms on TT.  It is still very complicated.  I have been doing my taxes for many, many years, and I had to call the number in contacts and talk to a CPA to figure out the mess that is form 982.
  • In box 1b where is says "discharge of indebtedness…" this is where I put the total amount from my 1099-C correct? So if the collector put $9400 on the the 1099 that is the amount I would put in that box?
  • I am doing a 982 for a debt from 12 years ago. I am EXTREMELY confused as to how to go about filing this correctly..I have already filled out the 1099-C form and now I am working on the 982. I am doing my fiancés taxes and I am confused where I am reading that I have to list his assets from the time the insolvency occurred..? He has ZERO assets and the only "asset" he had back then when he went delinquent on this car loan was this HOW do I fill out this 982? I checked box 1b and than put the total amount from the collector but now do I check "yes" or "no" in box 3? I am also reading that I do not have to fill out part II or part III but my form has a red "!" next to it and says "DO NOT FILE" at the top!! And whatever I do, it does not reset the amount we are getting back?! SOMEONE PLEASE HELP ME!!
This submission is intended to help figure out how to get Turbo Tax Deluxe to incorporate Form 982 into your tax return.  I was able to get it after some fidgeting and I had a tax pro review the results.

First, be sure you have entered your forgiven debt.  Turbo Tax handles this well in the interview: Federal Taxes/Wages & Income/Less Common Income (all the way at the bottom) then click on Update next to Miscellaneous Income 1099-A, 1099-C.  Complete the interview to enter your 1099-C info.

Now for the rest of the process: You will need to manually insert Form 982 into your return.  Do this by clicking on the FORMS button at the top on the right.  Next Click on “Open Form” (button on the top Left).  In the “Type a Form Name” box at the top, type “982”.  Then select the form that pops up (Form 982: Reduction of Tax Attributes) and click Open Form.

In the Form, in my case, I click the box 1b (discharge due to insolvency).  Then I typed the amount to discharge in Line 2.  (I read Publication 4681 Cancelled Debts and the Instructions to Form 982 that I downloaded from the IRS website to figure this out.)

I left all of Part II and Part III blank.  As much as I studied, I could not figure out what to do on this.  A friend of mine is a tax pro who has professionally filled out this form for his clients.  He told me to leave Part II and Part III blank.  I welcomed that advice.  He explained that “if” the IRS had an issue with that, they would write you a courtesy letter asking you to fill it out, but that none of his clients had ever had problems with leaving it blank.

At this point, Form 982 is complete.  However, Turbo Tax will not flow through the effects of Form 982 into the rest of your return.  The next steps are how I got it all working.

While still in the Forms view, click on Form 1040.  Double click where the amount is shown for Line 21.  In my case, Turbo Tax wrote in a description “Canceled Debt Income”.

After double clicking, Turbo Tax opens a form called “Other Income Statement” for Form 1040 Line 21.  Line 15a1 of this Form shows my canceled debt amount.  In Line 15a2, I manually typed in the Discharge amount from Form 982 Line 2.  The result is, Turbo Tax deducted the discharge amount from Line 15a3, which is the net Taxable amount of canceled debt.  That should do the trick.

If you click back onto Form 1040 and look at Line 21, you should see that Turbo Tax deducted the discharge amount from Form 982 Line 2.  For me, this completed my tax return.  I printed out the filing copy and went line-by-line through each form making sure everything flows and mathematically recalculated.  Also, I had my tax pro friend do a complete review of my return.  He found no problems.

Hope this helps.
  • ko0lina's answer was the first that SOLVED THE PROBLEM FOR ME/   
    I filled out form 982 but could not get TT to subtract the part I claimed was reduceable due to the insolvency.  This solution of double clicking to reduce it worked perfectly.  Thanks for your brilliance.  TT needs to make this easier for next year's version.  I hunted for hours to figure this out.  
    Thanks again.
  • Just used this on my 2012 "Home and Business" edition of TT. Works great! Thanks a million for taking the time to explain how to work around what TT should've done for us!
  • Thank you, thank you, thank you...I was pulling my hair out trying to get TT to recalculate...This did the trick!
  • won't know until I try this update. Thanks
  • KoOlina's answer was great. It saved me a bunch of time and frustration. Megathanx!!
  • Thank you!!! I couldn't figure this out until I found your post. Turbotax needs to modify the program so that it incorporates form 982 once it's completed.
  • I updated to Deluxe and I don't see where the "Forms" are.  They make it sound like you need the download version of Turbo Tax instead of Turbo Tax online.   Anyone know for sure?
  • mrogalla  and baker4316 where did you find the forms?
  • OH my word this post is BRILLIANT!!!!   Do note you HAVE to purchase the Deluxe Download Version - you can NOT use the online Deluxe version.  But it's worth every penny!  Follow KoOlina's directions step by step and it works!  Thank you SO much!  I never would have figured this out on my own.  Thank you!
  • @landwehr6

    Did you figure it out? It's available in Turbotax Deluxe. I installed from the DVD. I saw some previous comments that said it's not available in the online version.

    Go to the top upper left corner of the Turbotax window and you will see a small icon that says 'forms'. Click on that and it will flip the screen over to the forms window. Go to the top and there is an icon called 'open form'. Type '982' in the search field and the form will open.

    I needed it for a loan modification of my principal residence. So for that, you check off 1e, then enter amount of cancelled debt on line 2 and line 10b. This is per the IRS instructions for 'The Mortgage Forgiveness Debt Relief Act and Debt Cancellation'. However, keep in mind that this law was in effect from 2007-2013. It expired 12/31/13 and has not yet been extended to 2014. This is very unfortunate. Homeowners who had a portion of their principal reduced after 12/31/13 could end up with large tax bills that they might not be able to pay.

    One other thing I discovered after working on this: if you received a 1099-c for a loan modification, there is a way to answer the questions that will automatically generate the 982 for you. Meaning you will not have to enter the info manually.

    Go to the section under 'wages + income', called 'less common income' and select 'miscellaneous income, 1099-c'. Then select 'cancellation of debt'. Select the first option 'I received a 1099-c for the cancellation of debt on my main home' and transaction type will be 'other transfer'. Choose the number of 1099-cs you received. In my case it was just one. When it asks it you had a second mortgage, select 'no' (only if this applies to your situation, of course). Then select 'I refinanced the loan on my main home'. Question regarding using home equity for other purchases, answer 'no' (only if this applies to you). Enter cancelled debt amount in 'box 2' and check off box that says 'debtor was personally liable for repayment of the debt'. You will then get a message that says 'Good news! Your cancelled debt is excluded from Tax'.

    Again, this only applies if you had a loan modification on your principal residence between 2007-2013.

    Hope this helps anyone else having a hard time figuring this out. And another big thank you to @KoOlina for providing such helpful information!
  • Thank you so much for your help and concern!  YES I did figure it out with KoOlina's step by step!   It was awesome I'm so excited!  I did have to start from scratch and do the downloaded version of the Deluxe as the Forms are not available with the online versions but it was worth the extra time and effort because it save me a LOT of $$$.  (I would have been docked about 3,500 if I just claimed it as income but I truly was insolvent at the time so this was a huge help!)  Thank you for checking in!
  • Sincere thanks. I am exhausted tonight. I will try your acknowledgement on Sunday. I feels good to know that someone has accomplished this Form 982 and is willing to help others. Thanks again!
  • @landwehr6

    I'm so glad you figured it out!

    Thanks to this wonderful Turbotax community for all the great info.
  • Mega thanks!!!!!!
  • Thanks so sincerely for your help!
  • So if I understand correctly, I am NOT to put anything in box 10a if I was insolvent at the time of my CC cancellation?  I have read other places to put the total in Part 1 box 2 into Part II box 10a.  This is the only part that is confusing me.  The reast I have done.
  • @jmorisey

    My info is for a loan modification only. Not sure which box you check off for insolvency.
    Maybe someone else can answer?

    Here is some info on filling out form 982 for insolvency. Hope this helps:
  • This was a lifesaver!!  It works with 1040x as well. I only wish someone would inform TurboTax customer service!  I spent over 2hours on the phone with them being told everything from I could not use their software for this to I needed to come up with $$$ to buy the upgrade version, (to which I pointed out this was a major Catch 22, that if I was insolvent, I really didn't have the $$ the money for that.) Anyway, got the software, got this explanation, and about a dozen hours of reading help sections,+online search, + customer service, +more online searches, I am finally, & gratefully done & may sleep. Thank you.
  • Thank you! I never would have figured out how to get turbo tax to recalculate the form 982 debt.
    You got me almost $3000 back!

  • Hey everyone - not only did it work, my refund came back in 6 days!  (Direct Deposit)   So thankful for this Turbo Tax community!!!!!!
  • Deals with a 1040 tax return but not a 1065 return
  • Best fix great job. It really worked for my customer!
TurboTax or any tax software does not exclued the 1099-C, that is up to you the taxpayer to do so.  If you think you were insolvent of the cancelled debt you need to file a Form 982 with your taxes.  The form is included with the Deluxe addition, you just have to go to the form section and then look for the Form 982.  If it was for a debt to a credit card, then you would check off "1b" in Part I of the 982 Form and then "2" you would enter the total amount from all of your 1099-C.  The next thing you would need to do is an Insolvency worksheet that also include in the TurboTax software under forms (1099-C) section.  If your cancelled debt for example is $5000.00 that goes on the Insolvency worksheet.  Also, you will need to list all your assets before the cancelled debt and the amount.  In addition, you will also need to list all your liabilities before the cancelled debt and the amount.  Then you take your total liabilities and subtract that from your total assets.  So, if you total liabilities were $15,000 and your total assets were $7,000 that means you were insolvent of $8,000.  If this amount is more than your cancelled debt then you do not have claim it as income on your taxes.  Now if the amount is less than your current cancelled debt then you would take that amount (liabilities - assets) and deduct that from the cancelled debt and only have to claim the difference.  So, all you need to do is file a FORM 982 and Insolvency Worksheet with your taxes.  You will only need to do the 1099-C form if the cancelled debt is greater than your Insolvency.
  • great help except for last sentence makes it back to confusing - I assume you really do need to do the forms either way because the 1099-c has been reported to the irs - they want an explanation why you are not including it as added income or why you claim a lower amount than the 1099-c is claiming - right????
  • I upgraded to Deluxe and can't find the forms anywhere.  HELP!
KoOlina's was ABSOLUTELY THE BEST ANSWER ... straight to the point, and step by step instructions. Knocked off a ton on my taxes due after hours of trying to figure this out.
  • Koolina's explanation was the best. Thanks
  • Thanks KoOlina! The instructions and explanation could not have been made any clearer. You saved me a lot of time.
Turbo Tax explicitly tells you that it does not deal with cancelled debt where you wish to use the insolvency exclusion. TT advises you to consult a professional tax preparer in this case.
  • buy the desktop version so you have access to the forms icon and you will have the form 982 to offset the other income.  I think TT should have a work around for this, but no one asked me what I think!
I was able to work around this by going through the wizard with short sale of primary residency, searching for form '982' and checking excluded because of insolvency and right click on excluded because of primary residency and overriding the check.
  • this is for "justsomeguy74":  how do i "work around this by going through the wizard with short sale of primary residency" -
  • I'd like to bump this! In this economic time with the amount of cancellation of debt going on, it's incorrigible that TT doesn't support this. I am way upside down in my whole situation including my house and need to file as such!
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