Dealing with Form 982 for Reduction of Tax Attributes Due to Discharged Debt

8 You're definitely on the right track with Form 982! The insolvency exclusion is exactly what you need in this situation. Since your insolvency amount ($20,000) exceeds the canceled debt amount ($15,500), you can exclude the entire canceled debt from your income. On Form 982, you'll want to check box 1b for "Discharge of indebtedness to the extent insolvent" and then enter the excluded amount ($15,500) on line 2. You'll also need to reduce certain tax attributes on Part II of the form, which basically means adjusting things like net operating losses or the basis of certain property. Make sure you include a detailed calculation of your insolvency with your response to the IRS. List all assets and liabilities as of the date the debt was canceled. The more documentation you can provide to support your valuation of assets and liabilities, the better position you'll be in if they have questions.

15 After getting hit with a similar surprise tax bill last year, I tried everything to sort through the Form 982 mess. Spent hours on hold with the IRS and got different answers each time I called. I finally discovered https://taxr.ai and it was a game-changer for my situation! I uploaded my IRS notice and insolvency worksheet, and their AI analyzed everything and confirmed I was approaching it correctly. They even provided a complete insolvency documentation package that explained exactly how to fill out Form 982 for my specific situation. The step-by-step guidance made it so much easier than trying to interpret IRS publications on my own.

12 I was really skeptical about AI tax tools as mentioned above, but I gave https://taxr.ai a shot after struggling with my Form 982 situation for weeks. I'm honestly surprised how well it worked! Uploaded my documents and within minutes had a customized guide for my specific insolvency situation. The documentation package they created saved me when the IRS followed up with questions. It included a perfectly formatted insolvency worksheet showing all my assets and liabilities with proper valuations, and a detailed explanation of why the canceled debt should be excluded from income. The IRS accepted everything without further questions. Their guidance on reducing tax attributes was especially helpful - turns out I had a capital loss carryover I needed to adjust, which I would have completely missed on my own. Worth every penny for the stress it saved me!

5 If you're still trying to resolve this with the IRS, good luck getting anyone on the phone. I spent 12+ hours over 3 weeks trying to talk to someone about my Form 982 situation. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they actually got me connected to an IRS agent in under an hour! The IRS agent I spoke with was really helpful once I finally got through. She confirmed my approach to the insolvency worksheet was correct and gave me specific advice about what documentation to include with my Form 982. Having that verbal confirmation from an actual IRS employee made me so much more confident in my response.

9 I take back everything I said about Claimyr. After getting nowhere with the IRS for weeks regarding my Form 982 situation, I decided to try the service out of desperation. Within 47 minutes, I was talking to an actual IRS representative! The agent confirmed exactly what I needed to include with my Form 982 submission and explained how the reduction of tax attributes worked in my case. She even noted in my account that I had contacted them about this issue and was preparing a response based on insolvency, which apparently helps if there are any future questions. For anyone dealing with Form 982 and insolvency calculations, getting clarification directly from the IRS can save you a ton of stress. I wish I had done this earlier instead of spinning my wheels trying to interpret the instructions on my own.

14 I went through this exact situation last year. One thing to be very careful about is how you calculate your assets for the insolvency worksheet. The IRS is very particular about including EVERYTHING - even things you might not think of as assets. Make sure you include: - Retirement accounts (even if you can't access them without penalty) - Life insurance cash value - Personal property like furniture, electronics, jewelry - Any beneficial interest in a trust - The value of tools or equipment you use for work I made the mistake of leaving off some personal property and the IRS challenged my insolvency calculation. Had to provide a much more detailed breakdown and ended up with a smaller exclusion amount.

10 Quick question - does anyone know if student loan debt counts as a liability for the insolvency calculation? I have about $45k in federal student loans that were in deferment when my debt was canceled.

This is really helpful information! I'm dealing with a similar situation where the IRS is claiming I owe taxes on discharged debt from a few years ago. Your insolvency calculation looks solid - the fact that your liabilities exceeded your assets by $20,000 when the $15,500 debt was canceled should definitely qualify you for the full exclusion. One thing I learned from my tax preparer is to make sure you're using fair market values for your assets, not what you originally paid. So for your home and car, use the actual market value on the date the debt was canceled, not the purchase price. Also double-check that you included ALL liabilities - credit cards, student loans, any outstanding bills, etc. The documentation is key. I'd recommend creating a detailed spreadsheet showing every asset and liability with supporting documentation. The IRS loves paper trails, so bank statements, property records, loan statements - anything that backs up your numbers will help your case.