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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.

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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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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, 106KB)

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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