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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 used Gary’s services to file my 2012 income tax return. This was my first year having an accountant do my return, as I have always done it myself using TurboTax. However, this year I had cancelled debt from my old primary residence which I was forced to convert to a rental property after relocating out of state.

While it didn’t cost me anything to do the short sale, the income tax consequence from the cancelled debt, roughly $50,000 in my case, was enough to move me from the 15% tax bracket to the 25% tax bracket.  Needless to say, I was concerned about that.

Finances were already tight and my husband and I are expecting our first child this fall. So the possibility of owing income tax was stressing me out. However, Gary was great at relieving my fears.

He is extremely knowledgeable, answered all my questions and was very thorough. I knew I was in good hands. He kept in constant contact with me throughout the process, keeping me updated on the progress of my return and letting me know what paperwork he needed to complete my filing.

In my mind, best case scenario would have been to not owe any taxes. Second best would be to only owe a little. Well, you can imagine my surprise and delight when Gary told me I was actually due a refund of a little over $2,700.00!

To top it all off, I found Gary’s fee for service to be fair, competitive and affordable; especially given the complexity of this type of return. I am so glad I did not try and go it alone this year. I am extremely pleased with Gary’s service and would recommend him highly to anyone, in fact I already have. If you have cancelled debt from a short sale or foreclosure, don’t freak out. Take a deep breath and call or email Gary. I am grateful I did.

Angie Falke of Holiday, FL

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Insolvency CPA discusses Student Loan Cancellation | Student Loan Debt Relief through Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) | Form 1099-C: Cancellation of Debt

student loan debt relief student loan cancellation insolvency CPA Form 982

Congratulations on your student loan cancellation. But now the IRS assumes the cancelled debt is taxable income – ouch! If you need help with Form 982, call for a free phone  consult: (910) 399-2705.

Cancellation of debt for student loans doesn’t always mean you’re off the hook with the IRS. If you received a Form 1099-C, your cancelled student loan becomes taxable income on your Form 1040 unless you can exclude it through one of the provisions of Form 982. Hi, I’m Gary Bode, an IRS insolvency CPA with a virtual office to help with the tax consequences of student loan debt cancellation wherever you live. Here’s a rough rule of thumb to calculate the potential taxes due on cancelled debt. Figure 25-30% of Box 2 of Form 1099-C. I’ll give some tips on how I approach cancellation of debt for student loans.

Were you supposed to get a Form 1099-C for student loan cancellation?

In some situations cancellation of debt for student loans isn’t taxable and doesn’t require a Form 1099-C. Confusion abounds. But the IRS assumes Form 1099-C is valid and you have to prove otherwise. You’re supposed to wrangle with your bank to correct the mistake. But sometimes you can get the IRS to help.

Is the amount in Box 2 of Form 1099-C the amount of student loan actually forgiven?

Banks make mistakes.

Provisions of Form 982. Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) used for student loan cancellation

Two provisions of Form 982 might keep your student loan cancelled debt from becoming taxable income; bankruptcy and insolvency. I’m not covering bankruptcy here. I’m not a bankruptcy attorney and I recommend you consult one to determine the benefits and consequences.

Insolvency Provision of Form 982 for student loan cancelled debt

Insolvency for Form 982 is different from bankruptcy. In my experience, it’s usually the only practical way to exclude student loan cancelled debt from taxable income. Here you’ve got a shot at excluding cancelled debt from Line 21 of Form 1040. But there’s no free ride with the IRS. The tax attributes section of Form 982 means you might decrease other tax deductions and credits.

Do you need an insolvency CPA to use Form 982 to exclude your student loan cancellation form taxable income?

It depends. I’m sure some folks handle it themselves. But the first time preparing Form 982 is the hardest. Often there’s a lot of tax consequence at stake. Publication 4681 isn’t written in plain English. New clients often state TurboTax and other tax software doesn’t handle insolvency well. I’ve had at least 20 tax preparers call me for help this year so far. Do some homework. If you get uncomfortable preparing Form 982 give me a call. (910) 399-2705.

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Here’s the 2012 Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) .

Download (PDF, 113KB)

The notorious 2013 1099-C, Cancellation of Debt


2 comments to Insolvency CPA discusses Student Loan Cancellation | Student Loan Debt Relief through Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) | Form 1099-C: Cancellation of Debt

  • Ewa M. Seiler

    At age 65, I received a 1099-C for $102,000—the result of student loan forgiveness due to permanent disability. As of the date of loan discharge, I was insolvent: $2,250 assets; $18,000 liabilities.

    My SSDI ended a few months later when I turned 66 and began receiving regular social security. A few months later, my husband (age 68) was diagnosed with terminal leukemia.

    He filed his own 2012 separately to protect our house (in his name only). I requested an extension to today, October 15.

    So far, I have done the following:

    Checked:1-b in Part I.

    Selected: 10a: Should I put the $15,750 in this line?. Is this right figure?

    I am using TurboTax 2012 “Attachment to Form 982” to describe assets and calculate ‘basis after reduction”

    (1) I’ll attach Form 982 with the Attachment to my return, but how can I reduce my adjusted gross income, line 37, using an automated, “fill-in-the blanks” tax program like TurboTax. It does not automatically subtract 982 data from line 37 or anywhere else on a 1040. You mentioned line 27. But this is for self employment tax and requires an entirely different form.

    (2) I’ve read on your blog that the ENTIRE amount of the 1099-C can be eliminated. Can this be done? How? Under what circumstances?

    (3) I know I shouldn’t “self prepare” on this issue. I am certainly not capable of doing this right.

    But I am running out oftime. I am caring for my husband (and disabled son) full time and this has left precious little time for grappling with 982 and 2012 taxes. Can I file a 1040X to correct mistakes in the 982?

    Sorry to be so late with this question.


    Ewa M.
    (802) 748-8060 (Vermont)

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