Form 982 CPA discusses how to exclude Cancelled Debt from Taxable Income | Form 1099-C

CPAs use IRS Form 982 to exclude cancelled debt from taxable income on Form 1040, or your company’s tax return. All cancelled debt becomes taxable income for the IRS if it can’t be excluded on Form 982. Examples of cancelled debt include:

• Credit card account negotiations, where the credit card company writes off over $600 of your debt.
• Foreclosures, where the lender writes off over $600 of your mortgage.
• Short sales, where the lender writes off over $600 of your mortgage.
• Car repo, where the bank writes off over $600 of your loan.

Lenders report cancelled debt to both you and the IRS on Form 1099-C.

• If you received a Form 1099-C for 2010, and didn’t exclude it via Form 982, consider amending your 2010 Form 1040.
• If you receive a Form 1099-C for 2011, study up on Form 982. Otherwise the amount on Form 1099-C becomes taxable income on Line 21 of Form 1040.
• If you expect to have cancelled debt in 2012, use the intervening time to optimize your future tax position.
  - Gary Bode, Form 982 CPA and tax accountant

Sources of Information

• This site has multiple posts on Form 982, Form 1099-C, insolvency and cancelled debt. Simply click on the form in the left sidebar or the topic in the drop down box in the right sidebar.
• Form 982 instructions.
• Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Note this is a complex area of IRS taxation. You can’t reasonably use these posts alone for tax preparation.

General Guidelines

• If you have cancelled debt and don’t receive a Form 1099-C, make sure one wasn’t sent to the IRS by your lender.
• Double check Form 1099-C accuracy for both date and amount. Both are important.
• Form 982 calculations use the date of the cancelled debt, not December 31st.
• Since Form 982 reduces your taxes, the IRS probably scrutinizes it closely. Make sure it is accurate.

I’m a Form 982 CPA with a virtual office to serve long distance and international clients. This website advocates self tax preparation when realistic. But form 982 usually warrants CPA preparation. For a free phone consult, please call (910) 399-2705.