Cancellation of Debt and Form 982

Welcome to our video on "Cancellation of Debt and Form 982"! In this informative session, we delve into the crucial topic of debt cancellation and guide you through the process of filling out Form 982. If you've ever found yourself burdened with canceled debt and unsure of the tax implications, this video is a must-watch.
Form 982 plays a pivotal role in dealing with canceled debt and potentially reducing your taxable income. Our experienced experts will walk you through the various sections of this form, helping you comprehend the intricate details and guiding you on how to correctly fill it out.
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[@danielleknight7600]

Can you add Spouses debt on 982 Insolvency Statement? 1099-C is only in Husbands name

[@andyfrye6022]

As long as you're doing Married Filing Jointly, yes both spouses can list out all debts. (Would also have to list out all assets though, too.) There are a couple rare exceptions to this but, in general, yes, both spouses assets / liabilities would be considered on a jointly filed tax return.

[@longislandlolita5]

Question ? Where it says real estate market value is that how much your home is worth or how much equity you have in it? For example if you owe on your home ? Or is this for other real estate you own beside your home?

[@andyfrye6022]

Hi Loralee, good question. You would list the mortgage on the home as a Liability and then the home value as an Asset on the "insolvency worksheet" that the IRS requires as part of this process. All other Liabilities and Assets (including other real estate you own) would need to also be listed out. This would be a tough process to handle yourself and normally / ideally a qualified tax professional would help with all those calculations, to make sure whatever debt you excluded is correctly done. Hope this helps!

[@longislandlolita5]

@@andyfrye6022 what if you own your home and it’s appraised at 152,000 but you have a lien on it for the total amount for 15 years through a home grant for under income

[@longislandlolita5]

@@andyfrye6022 I’m not sure what happened to my last comment. But what if I do not have a mortgage but a lien for the amount it cost to build it bc I got the house thru a low income grant so u have a 15 year lien on it where u can’t sell it

[@andyfrye6022]

Hi Loralee, if the lien is a loan, then it would count as a Liability for as long as it stays on the property. Thanks for the good questions and hope this helps.

[@onterioushuitt151]

so how is this instrument used to get rid of the debt and who can use it and what can it be used on

[@ProntoTaxSchool]

Form 982 is filed with your Form 1040 (personal income tax return) in the case where the taxpayer has a cancellation of debt "income" that qualifies as non-taxable. In essence, the Form 982 is the "claim" saying, "Yes, I had a canceled debt, but I should not have to pay income tax on the canceled debt because of ABC Reason." In most cases, the "ABC Reason" used on Form 982 is insolvency (liabilities exceed assets). Here are the Form 982 instructions from IRS if you'd like to delve deeper into this topic: www.irs.gov/instructions/i982 You can also plug "Form 982 Insolvency Worksheet" into Google and you will be able to pull up the actual worksheet where you can do the numbers and see if the insolvency exception could apply... Not sure if that all makes any sense, hope it does and hope this helps. Thank you for the astute question.

[@onterioushuitt151]

@@ProntoTaxSchool yes this makes perfect sense to me and thank you for your response

[@ProntoTaxSchool]

@@onterioushuitt151 - Great! Thanks for your question and for watching this video.

[@jgwalli2421]

So basically if your debt is greater than your assets then you can file this form 982

[@andyfrye6022]

That is a good "long story short" summary of the basics, yes, thank you.

[@LaelMitchell]

What if the finance company put on the 1099-C that I WAS personally liable for the debt and that it’s recourse debt even though the repossessed the car, forgave the loan, AND sold it as collateral?

[@ProntoTaxSchool]

Hi Lael, thanks for the question. Assuming you meet the IRS definition of "insolvent" (your liabilities exceed your assets), you should be able to avoid paying income tax on the cancellation of debt. You would want to work with a good tax professional to make sure your situation is optimized. Here is a list from our network: experts.prontotaxschool.com/

[@onterioushuitt151]

Also Lael makes sure you use the that same document as a proof of claim to increase your credit score. Because of what I have read once the company files the 1099-c that is now considered certificate of indebtedness this works with any item that has been charged off a debt and claimed by a company. It now in turn becomes income and if they say they don’t agree with that tell them to send you a copy and send it to the companies indentured trustee.

[@christianabaza9848]

When reducing tax attributes, does this affect my business expenses from schedule C as a sole proprietor whatsoever? Since this is what was used to create an NOL?

[@ProntoTaxSchool]

Thanks Christian, the reduction of tax attributes applies to the debt that was canceled and any asset(s) associated with that canceled debt. So for example, let's say that the canceled debt was related to a home. The taxpayer does a "loan modification" whereby the bank cancels part of the mortgage, but the taxpayer stays in the home. The "tax attributes" of that home (and its mortgage) need to be "adjusted" to reflect the fact that part of the debt was forgiven. This may impact the net profit on the sale or other "tax stuff" down the line. With respect to your question, then, a canceled debt should not directly affect your Schedule C expenses--*unless those expenses are related to the debt that was canceled.* A good tax professional should be able to help you with these complications. A list of pros from our network here in case that's helpful to you: experts.prontotaxschool.com/

[@Speye-C]

Thank you, very good So my understanding, With non- recourse debt, the collateral will satisfy the balance due........no matter the FMV of the collateral. Does this include fees? For example, collection fees. Or, administration fees.

[@ProntoTaxSchool]

You're welcome, thank you also for your comment. That seems like more of a legal question and not something, as a tax education company, we'd be qualified to answer... Probably a legal / collections expert would be the best source for that answer.

[@WilliamWaddell-z7w]

Wait so you filed form 982 and reported the income?

[@marcoagarciausa]

Do you know if California conform with the non recourse debt?

[@andyfrye6022]

Hi Marco! In general, CA confirms to federal debt forgiveness rules. A professional would need to know about the specifics of the canceled debt before giving any actual advice. This link may be helpful to you: www.ftb.ca.gov/tax-pros/procedures/s-corp-handbook/s-corp-chapter-11.pdf

[@cheekscheeks8811]

I received a 1099-C for an old credit card. It was sold to a 3rd party company whom I settled for half the amount. Do I qualify to file a 982?

[@ProntoTaxSchool]

Hi Cheeks, thanks for the question. You'd want to connect with a tax consultant who can review your situation (filling out Insolvency Worksheet, for example, listing out all your assets and liabilities) in order to determine if you qualify to not pay tax on the canceled debt. Here are some tax pros in our network who may be able to help: experts.prontotaxschool.com/ Hope that helps you.

[@cheekscheeks8811]

@@ProntoTaxSchool Thank you so much!

[@natasharodriguez2015]

@Pronto Tax School if u can help with any info or guidance

[@ProntoTaxSchool]

Please see comments above and hope that helps!

[@natasharodriguez2015]

Maby u can help. I had a car for 6months I got as at trade from the same car company I was previously buying a car from after two years it had problems and I had it in their personal shop the car dealership shop and they told me that it was no good anymore so they let me do a trade-in I had the car for six months. My insurance went up to $400. The car payment was 525. I couldn’t afford it so I did a voluntary repossession, this was in 2023. I’m a mom of three boys, my son the senior this year and I’m pretty sure nobody cares about that but I was really needing my tax return this year so I filed my tax return and a few days later a 1099-C came in the mail. their dish charging a dip of 20,000 for the car loan the car was valued at 8000. Does this mean they’re gonna take all of my income tax

[@natasharodriguez2015]

Could I file the 982? I do have forget debt I still owe for my probation fees like $6,000 I’m paying on a title loan I been paying on for 2 years now that I’m fighting real hard to keep and not lose my title which is 1900 and my regular bills I owe old credit loans. Yes I’m working full time and was then but

[@ProntoTaxSchool]

@@natasharodriguez2015 - thanks for the great questions. There (usually) is a way to avoid paying income tax on canceled debt if you qualify as "insolvent." Insolvent means, for our income tax rules, that your liabilities (debts) are more than your assets. The Form 982 that our mentor describes in this training video involves filling out a "balance sheet" showing your liabilities and your assets, showing that the liabilities are more than the assets, and then if that is the case, that is the method for eliminating the income tax associated with your debt cancellation. That probably sounds all like a lot of nonsense! :) A good tax professional will know how to do this. Here are some options for tax pros in our Pronto Tax School Network: experts.prontotaxschool.com/

[@natasharodriguez2015]

@@ProntoTaxSchool thank you for responding back! I appreciate you

[@ProntoTaxSchool]

@@natasharodriguez2015 - we appreciate you as well! All the best to you Natasha.