We Prepare Tax Returns!

We prepare most type of tax returns:

Individual. 

S Corporation.

C Corporation.

Partnership.

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Amended.

Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

Client Testimonials

I became totally and permanently disabled after a working for 44 years. I returned to college late in life (while working full-time) to fulfill my dream of becoming an RN and at that time found it necessary to secure student loans. Three years after being declared totally and permanently disabled my student loans were discharged. In January 2013 we received a 1099-C form declaring said student loans that were discharged however that amount could be considered as income for 2012. This was a large amount of money and we live on two pensions and social security income.

I started looking on the internet for information regarding 1099-C and felt that this was something that we could not handle alone. I made phone calls locally to a very reputable tax group in a city near us and they said it would cost $500 for an appointment and that they really prefer to do corporate taxes and they referred me to a local person who had worked for them at one time, we called and explained the situation and an appointment was made and then the comment was made that "I will have to do some research on this" and flags immediately went up and we called back and cancelled that appointment. I had been researching the IRSwebsite and every place else I could think of and I was not comfortable doing our own taxes this year. We called another local tax preparer that we had used in the past and made an appointment, however prior to the appointment, while still seeking information regarding our situation,

I came across a website for Gary l. Bode, MSA, CPA, PC in Wilmington, NC. I called Mr. Bodeand explained our situation and asked if he could help. He spoke very knowledgeably regarding the situation and stated that yes; he felt he could help us. As Mr. Bode was in North Carolina and we were in New York I scanned all of our documents including back-up documents for all of our claims and forwarded all to him. Mr. Bode kept in touch with us via email; we have spoken on the telephone several times and have become very comfortable with his knowledge and professionalism. Also, as I am a true "worrier" I have continued looking into information regarding our tax situation and I came upon another web page for Mr. Bode that included testimonials which spoke of his experience with this type of tax situation as it became prevalent during the recession. This reinforced in our minds that we had made the right decision in hiring this person as our tax preparer.

I share all of this as our taxes are now ready to be filed (we do owe tax for 2012 but not the astronomical figure we thought we were facing), and we are confident that they have been prepared with the utmost care by a gentleman who has an excellent working knowledge of the situation we faced and the tax laws that were applicable to said situation.

 

Bill and Carol

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Even though Gary enjoys helping colleagues, we no longer provide free consults to other tax preparers. He's happy to consult on an hourly billing basis if our schedule allows.

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Discharge of Indebtedness CPA discusses the tax rules for reporting cancellation of debt | Form 1099-C | Form 982

tax rules for cancellation of debt CPA

IRS debt cancellation rules look complex at first. Try narrowing your research scope. Lots of  IRS info doesn’t apply to you. Or call us  for a free consult on Form 982. (910) 399-2705.

Cancelled debt CPAs understand the tax rules for reporting cancellation of debt. But most Folks who call me don’t. Plus they’re often nervous because the potential tax due on Form 1099-C is roughly 25-30% of the amount in Box 2. Yikes. And they’re intimidated by the Form 982 instructions and IRS Publication 4681.

So I’ll present  a primer on cancelled debt and discuss the most frequent questions I’m asked about Form 1099-C, Cancellation of Debt, and, Form 982, Reduction of Tax Attributes.

The Form 982 instructions and IRS Publication 4681 cover more tax reporting than you need

Like most IRS tax forms, Form 982, Reduction of Tax Attributes, covers a variety of canceled debt circumstances. That means most of the IRS rules don’t apply to your specific situation. One client defined the terminology used in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, as IRS double speak. Cute but true.

What is Form 1099-C, Cancellation of Debt?

It’s a form that reports a lender writing off some or all of your debt. You get a copy. The IRS gets a copy. Generally speaking, the amount of cancelled debt in Box 2 of Form 1099-C becomes taxable income on your business and/or personal income tax returns unless you can exclude it through one or more of the Form 982 provisions.

Does all Discharge of Indebtedness taxable?

No there are exceptions. Cancelled debt via a gift isn’t taxable (but do the research to ensure this exception applies to you). But, if you receive a IRS Form 1099-C, Cancellation of Debt, it’s almost always taxable.

IRS Insolvency on Form 982

Folks call me the Insolvency CPA because one of my posts ranked well in Google. But Insolvency is only one exclusion on Form 982. Sometimes you can use multiple exclusions.

Types of situations that generate Form 1099-C, Cancellation of Debt

  • Car repossession.
  • Primary residence foreclosures.
  • Primary residence loan modifications.
  • Primary residence short sales.
  • Rental property foreclosures.
  • Rental property loan modifications.
  • Rental property short sales.
  • Settling credit card debt for less than the full amount due.
  • Student loan debt. For example the lender’s will write off the student loan if you become disabled. But you still have to pay the taxes on it.

Does Form 1099-C mean the bank can’t still try to collect on my debt?

Sometimes they can still try to collect from you.

I didn’t get a Form 1099-C

Form 1099-C issuance seems capricious. But I’ve had multiple cases where the IRS got their copy of Form 1099-C and the Client didn’t. Probably because of a bad address issue. They called me after receiving the infamous IRS Notice CP2000 “proposing” they pay tax on the entire amount in Box 2. I’d check with the IRS if you expected a Form 1099-C. Amending a prior return to include Form 982, Reduction of Tax Attributes, is a common scenario.

“There’s not always a free ride with the discharge of indebtedness tax reporting rules. Sometimes Form 982 just delays taxes until you sell other property. Please read below for an example. “
– Gary Bode, discharge of indebtedness CPA

What’s the Reduction of Tax Attributes section of Form 982?

Let’s say the Bank adjusted your mortgage debt with a loan modification. The first hurdle, excluding the $500,000 from taxable income on Form 982, is straight forward. But Form 982 requires you reduce the basis of your assets. That means you would incur more taxable gain if you sell them.

Here’s the non Form 982 sale scenario. You paid $1,500,000 for the home. So if sold it for $2,000,000 there would be a $500,000 capital gain. Since there’s a primary capital gain exclusion for a primary residence you have no tax liability for the $500,000. Ever. A truly free ride.

Here’s the sales scenario with the Form 982. Your basis (purchase price) of home drops to $1M ($1,500,000 purchase price less the $500,000 of tax attribute reduction from Form 982. You sell it eventually for the same $2M. You have $1M of gain. Less the $500,000 primary home capital gains exclusion equals $500,000. Ouch you’re paying capital gains on the $500,000 you avoided initially with Form 982.

Moral of the story:

  • Planning can sometimes make Form 982 a free ride without raising IRS red flags.
  • Keep track of you your reduced basis and factor the tax in when you plan to sell the Form 982 affected asset.

Our virtual office can serve you regardless of location

So if you like what you read and need a Discharge of Indebtedness CPA call us for a free consult. (910) 399-2705.

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