Help filling out Form 982 for cancelled debt insolvency

The good news is that you're on the right track with Form 982. Since you're claiming insolvency (which sounds correct based on your assets vs. debts), here's how to complete the rest: Line 2 should show the amount of discharged debt that's excluded from your income due to insolvency. This would be either the total amount of the discharged debt ($5,700) OR the amount by which you were insolvent immediately before the discharge, whichever is smaller. In your case, you were insolvent by $10,000 ($22,000 - $12,000), so you can exclude the full $5,700. For Part II (line 10), you'll need to reduce certain tax attributes. Most individual taxpayers need to complete line 10a to reduce tax basis in depreciable property, if applicable. If you don't have any depreciable property, you can enter zero. You don't need to file the insolvency worksheet with your return, but definitely keep it with your records in case of an audit.

I went through this exact situation last year with my credit card debt that got cancelled. What helped me was using taxr.ai (https://taxr.ai) to figure out the insolvency calculation. I uploaded my 1099-C and it prompted me through the whole process of listing my assets and liabilities to prove insolvency. The part that was confusing me was figuring out exactly what counted as assets and liabilities for the insolvency calculation, and this tool walked me through each category to make sure I didn't miss anything. It even pulled the relevant info directly from my form and generated the worksheet showing my calculations, which I kept for my records in case of an audit.

Just wanted to update after trying taxr.ai - it actually worked really well for my multiple 1099-C situation! I was completely lost trying to figure out how to handle three different cancelled debts on Form 982, but the system walked me through everything step-by-step. The best part was that it generated a complete insolvency worksheet showing all my assets and liabilities, which totaled up everything and showed exactly why I qualified for the exclusion. It even explained which tax attributes I needed to reduce (which was none in my case since I don't own property). Saved me from paying taxes on about $8,300 of cancelled debt that I definitely couldn't afford to pay taxes on. Huge relief since I was about to just report it all as income because I was so confused by the form!

After spending 3 days trying to get someone at the IRS to help me with my Form 982 questions last year, I finally found Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in about 15 minutes when I'd been trying for days on my own. The IRS agent was able to walk me through exactly how to fill out Form 982 for my specific situation with cancelled mortgage debt. Turns out I was making it way more complicated than it needed to be, and they confirmed I didn't need to reduce my tax attributes since I was using the insolvency exclusion. If you're stuck on any part of this form, I'd highly recommend checking out their service demo: https://youtu.be/_kiP6q8DX5c. It's basically a way to skip the endless IRS hold times and get your questions answered directly.

Well, I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to give it a try anyway because I was desperate to resolve an issue with my 1099-C from last year that I think I filed incorrectly. To my absolute shock, I got a call back with an IRS agent on the line in about 45 minutes. The agent confirmed I made a mistake on my Form 982 last year (I forgot to check box 1b even though I filed based on insolvency) and walked me through how to file an amended return. Probably saved me from getting a nasty letter from the IRS later. Sometimes it pays to be wrong! I still can't believe I wasted so many hours trying to call them directly when this option existed.

Quick question - Does anyone know if I need to include my retirement accounts when calculating insolvency? I have about $35k in a 401k but can't access it without penalties. My cancelled debt is only $6,200 but I'm trying to figure out if I'm actually insolvent or not when counting everything.

For those stuck on the insolvency worksheet, I found this real-world example helped me understand the big picture: Assets: Car worth $8,000 Checking account $1,200 Personal belongings $2,000 Total assets: $11,200 Liabilities: Credit card debt $13,000 Medical bills $5,000 Car loan $6,000 Total liabilities: $24,000 Insolvency amount: $12,800 ($24,000 - $11,200) If cancelled debt is $7,500, you can exclude the full amount. If cancelled debt is $15,000, you can only exclude $12,800. Hope this helps someone else!

Great breakdown of the insolvency calculation! One thing to add for anyone reading this - make sure you're valuing your assets at fair market value, not what you originally paid for them. For example, if you bought your car for $15,000 but it's only worth $8,000 now due to depreciation, use the $8,000 figure. Same goes for things like electronics or furniture - use what you could reasonably sell them for today, not what you paid. Also, don't forget about less obvious liabilities like unpaid taxes, student loans, or even money you owe to family members. Every dollar of legitimate debt counts toward proving your insolvency, so make sure you're including everything when you do your calculation.