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Cancellation of Debt CPA answers FAQs on Form 982 | insolvency, student loan cancellation of debt, tax attributes of Form 982, Form 1099-C, Form 1099-A, credit card debt cancellation, loan modifications, non-recourse loans

Cancellation of Debt CPA Form 982

My advice is to exploit every avenue on Form 982 before paying taxes on cancellation of debt. (910) 399-2705.

Cancellation of debt CPAs field lots of questions on  IRS Form 982 issues. So here’s the FAQ list. If you get uncomfortable preparing Form 982, consider calling us for a free consult.

Can I use Form 982 to exclude student loan cancellation of debt from becoming taxable income?

Yes. Probably through the insolvency or bankruptcy conduits of Form 982.

Does cancelled credit card debt qualify for Form 982?

Yes. I see some tax positioning opportunities lost with clients using debt consolidation companies to battle the credit card companies. Talk to them about tax consequences of cancelled credit card debt.

What’s a non-recourse loan?

Several sections of Form 982, including insolvency, distinguish between recourse and non-recourse loans. A non-recourse loan means the bank can only take the collateral if you default and can’t come after you personally.

What’s the tax attributes section of Form 982 about?

Well the IRS doesn’t offer a free lunch with debt cancellation. If you have other assets, covered by the tax attributes section of Form 982, you must adjust the basis of them. That means you’re more likely to pay tax on a gain, if you sell them. But CPAs say the next best thing to paying no tax is paying the tax later. Just be sure to discuss the implication of adjusting the tax attributes with your Form 982 CPA. Some tax positioning opportunities exist.

Will Cancellation of Debt for a primary residence still be a “gimme” on Form 982 in 2013?

So far, the answer is no. I expect Congress will extend that provision, but opinions differ. You can still use the insolvency conduit of Form 982.

Is a loan modification cancellation of debt?

It can be.

What’s the insolvency component of Form 982?

Insolvency is the best known conduit on Form 982. Clients get this confused with bankruptcy, which is another Form 982 conduit. The IRS calculation for insolvency can get tricky. Read the Form 982 directions and Publication 4681 carefully.

Does Form 1099-A mean there’s cancellation of debt?

No. Form 1099-A doesn’t make the amount in Box 2 debt cancellation. So the lender can still pursue you. Form 1099-A means ownership of an asset changed hands. So you essentially have an IRS reportable sale. And you may have to pay taxes on a gain. But more likely, you’ll have a loss.

Does Form 1099-A mean there’s going to be a Form 1099-C eventually?

Probably yes. Since the Form 1099-C comes later, after your financial condition improves, Clients have a higher chance of cancelled debt becoming taxable income despite the use of Form 982.

Does cancelled debt on Form 1099-C always become taxable income?

Cancellation of debt, as reported on Form 1099-C, becomes taxable income unless you can exclude it through Form 982. Form 982 has multiple conduits. You may be able to exclude all the debt cancellation, none of the debt cancellation or some of the debt cancellation.

“You can amend a earlier tax return to include Form 982 if Form 1099-C arrives late, or you jumped the gun and included cancellation of debt in your taxable income before exhausting every conduit on Form 982.” 
– Gary Bode, cancellation of debt CPA and tax accountant

Is Form 1099-C always correct?

No. But the IRS thinks it is. If your lender won’t issue a corrected Form 1099-C, we sometimes carefully document the correct amount of debt cancellation and submit supplemental evidence with Form 982.

Please read any of our many cancellation of debt postings on this website to help you gauge our abilities. We can help with Form 982 wherever you live through our virtual office. (910) 399-2705.

Here’s a link to detailed examples of cancelled credit card debt tax reporting including Form 982.

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