IRS Form 1099-C CPA tax accountant discusses Form 982 | using IRS Insolvency for HAMP cancelled debt

As a Form 1099-C CPA, my composition of calls from potential cancelled debt tax clients is changing; from mostly rental real estate foreclosures and short sales to more requests for help with HAMP tax positioning for 2015. All cancelled debt uses IRS Form 1099-C, Cancellation of Debt, but the nature of the original loan dictates the approach of excluding cancelled debt, from taxable income, using Form 982, Reduction of Tax Attributes. For HAMP cancelled debt you’re stuck with using IRS insolvency on Form 982, please read below

I think there are four current trends in HAMP cancelled debt in play:

• For awhile, most primary residence cancelled debt was a “gimme” on the federal tax return using Form 982. But now the discharge of qualified principal residence indebtedness exclusion of Form 982 is gone. There must be millions of Folks out there with crossed fingers hoping Congress will reinstate it before 2015. So for now we’re left with using the IRS insolvency exclusion of Form 982 for HAMP 1099-C(s).
• The number of HAMP participants is increasing. As part of the federal bank bailout, some banks are initiating contact with homeowners who might qualify.
• It’s common for me to have new HAMP Clients present an earlier tax return where they paid taxes on the entire amount in Box 2, of Form 1099-C. Their tax preparers didn’t know about Form 982, Reduction of Tax Attributes. And some Clients state the HAMP agents are deliberating vague about the HAMP cancelled debt tax consequences. But now the Clients want to amend those tax returns to include both the Form 1099-C, Cancellation of Debt, and Form 982.
• The IRS is catching up on asking taxpayers about their un-reported Form 1099-C(s). A surprisingly high number of Folks don’t receive a Form 1099-C. So they don’t report it. I suggest checking your IRS wage and income transcript if you had a precipitating event, like a HAMP agreement, and didn’t receive form 1099-C.

Sources of help with HAMP Form 1099-C tax reporting rules

Well, Form 1099-C CPAs generally don’t use the IRS instructions. Why? It’s not an effective use of time. Compilation companies sell subscriptions to tax data bases, making research quicker and deeper. Your local University’s library might have such a resource. Personally I like to keep up with cancelled debt tax trends and the relevant tax court cases are easy to find, and read, with such research tools.

• Try the Form 982 instructions.
• The Form 1099-C instructions are for the banks, not the taxpayer.
• IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

HAMP canceled debt positioning for IRS Form 1099-C

Typically HAMP debt cancellation triggers a Form 1099-C for one third of the HAMP amount in the three tax years after the HAMP agreement. Most taxpayers deal with the 1099-C(s) as they arrive. Sometimes that’s the best way to go. The year’s debt cancellation is one third of the entire HAMP amount, perhaps an easier insolvency goal than the entire HAMP amount. You’ll know what date the impending Form 1099-C uses and sometimes can, legitimately, appear more insolvent on that one instant of time the IRS uses for the insolvency calculation.

Sort of a HAMP cancelled debt 1099-C secret

Insolvency depends on what you own and what you owe at the point on the date of the Form 1099-C. So, sometimes you’re in more dire financial straits just before the HAMP agreement than, say, in the third subsequent year.

“Sometimes I amend HAMP client tax returns for the year of the HAMP agreement. You can choose to present all your HAMP cancelled debt on that tax return instead of the three subsequent years when the HAMP 1099-C(s) arrive.”
- Gary Bode, Form 1099-C CPA

Do you need a HAMP cancelled debt CPA?

Maybe not. HAMP cancelled debt tax reporting rules use insolvency. Some insolvency issues are dicey. What are the tax consequences of HAMP cancelled debt? Maybe 25-30% on any amount of Box 2 you can’t exclude on Form 982. So, if one-third of your HAMP cancelled debt is $20,000 (Box 2 of Form 1099-C) for 2015 and you’re only $10,000 insolvent, expect to pay $2,500-$3,000 of tax on the remaining $10,000. If you don’t have a local Form 1099-C CPA experienced in HAMP cancelled debt consider calling me for a free tax consult at (910) 399-2705.

Find me on Google+
Like me on Facebook