Save thousands of dollars in taxes and find relief from financial distress with Form 982. Don’t overlook this essential document for debt cancellation, foreclosure, or short sale situations. Take action now.
Get relief from canceled or discharged debt with IRS Form 982. When lenders forgive a debt, it’s usually taxable. But there are IRC Section 108 exclusions to reduce your tax bill.
Form 982 provides a tool for taxpayers to claim exclusions for specific types of debt, such as qualified principal residence indebtedness, business debt, or certain types of farm indebtedness.
Taxpayers must complete Form 982 and attach it to their tax return for the tax year in which the debt cancellation occurred. The form requires detailed information on the type of debt, the fair market value of any property received in exchange for the cancellation of debt, and the total amount of debt discharged. Failure to complete the form correctly could result in the IRS treating the canceled debt as taxable income, leading to unexpected tax bills and penalties.
You can obtain IRS Form 982, also known as the Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), on the IRS website or on this page. The form is available for download as a PDF file, which you can print and complete manually or fill out electronically using tax software or online tax tools.
The insolvency exclusion allows you to exclude canceled debt from your taxable income up to the amount of your insolvency.
To determine if you qualify for the exclusion, you need to calculate your insolvency at the time your debt was forgiven or canceled. This means adding up the total fair market value of all your assets and liabilities and subtracting your liabilities from your assets. If the resulting number is negative, you were likely insolvent at the time of the debt cancellation.
The insolvency exclusion is available to taxpayers who meet specific circumstances such as being insolvent at the time of the debt cancellation or having the debt canceled in a Title 11 bankruptcy case. Other criteria include certain types of farm indebtedness, qualified principal residence indebtedness, and business debt.
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