Form 982: What Is It and Its Importance to Your Business

If you’re facing debt cancellation, foreclosure, or short sale of your property, Form 982 is an essential document that you shouldn’t overlook. This form can potentially save you thousands of dollars in taxes and provide much-needed relief in times of financial distress.

Form 982 is an IRS form that can provide much-needed relief in certain circumstances when facing canceled or discharged indebtedness. When a lender cancels or forgives a debt, the canceled debt is usually considered gross income and may be taxable. However, certain exclusions may apply under IRC Section 108 that can help reduce the taxable amount.

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. The form also allows for the reduction of tax attributes, such as net operating losses and general business credits, and the exclusion of income from the discharge of indebtedness.

Where to Get and Complete Form 982

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.

Alternatively, you can also obtain the form by visiting your local IRS office, where they can provide you with a hard copy or help you complete the form. It’s important to note that not all IRS offices provide in-person assistance, so it’s best to check beforehand.

When completing Form 982, be sure to accurately report all information related to your canceled or discharged debt, including the fair market value of your assets and liabilities, the amount of the canceled debt, and any available exclusions or deductions.

How do I know if I qualify for insolvency?

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.

Consult an Expert

To ensure you meet the qualifications and accurately complete IRS Form 982, it is essential to consult with a tax professional or an attorney. They can provide tax advice and support tax tools that help you determine the extent of the cancellation of debt income, reduce your taxable income, and claim any available deductions or exclusions.

Using tax software

If you’re using certain tax tools to file your tax return, the software will guide you through the process of completing Form 982 and help you determine if you qualify for any of the available exclusions or deductions.

FAQ About Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)

What is Form 982 used for?

Form 982 is used to report the exclusion of canceled debt from taxable income. It is typically filed by taxpayers who have had some or all of their debt canceled, forgiven, or discharged.

When do I need to file Form 982?

You generally need to file Form 982 if you had canceled debt in the previous tax year, and you qualify for one of the exclusions listed on the form. You may also need to file Form 982 if you received a 1099-C form from a lender indicating that canceled debt was reported to the IRS.

What are some common exclusions on Form 982?

The most common exclusions on Form 982 include the insolvency exclusion, which allows taxpayers to exclude canceled debt to the extent that they were insolvent immediately before the cancellation, and the qualified principal residence exclusion, which allows taxpayers to exclude canceled debt related to their primary residence. There are also exclusions for certain types of business debt, and debt canceled in bankruptcy proceedings.

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Form 982 – Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) 2018