Need Help Completing Form 982 for Cancelled Debt 1099-C

Does the taxpayer need to be insolvent by the FULL amount of the cancelled debt to exclude it all, or just insolvent in general? Like if they're insolvent by $3,000 but the cancelled debt is $5,740, can they exclude the full amount or just $3,000?

You can only exclude up to the amount you were insolvent. Using your example, if you were insolvent by $3,000 (meaning your debts exceeded your assets by $3,000) but had $5,740 of cancelled debt, you could only exclude $3,000 from your income. The remaining $2,740 would be taxable income. This is why it's so important to accurately calculate all assets and liabilities at the time the debt was cancelled. Make sure to include everything - bank accounts, retirement accounts, personal property, and all debts (credit cards, loans, medical bills, etc.).

How does it handle the insolvency calculation? That's the part that confuses me the most. Do you still need to list out all your assets and debts yourself or does it guide you through that?

I'm skeptical about tax tools that aren't the major names. Did it actually integrate with your tax filing or just give you information? I've been burned before by tools that seemed helpful but then I still had to manually enter everything anyway.

It has a detailed questionnaire that walks you through listing all your assets and liabilities at the time of the debt cancellation. It prompted me to include things I would have forgotten like the value of my car, furniture, and retirement accounts. Then it calculated my insolvency amount and told me exactly what to put on each line of Form 982. The information it provides is extremely detailed - you can download a PDF report that shows all your calculations and the proper form entries. I took that information and entered it into TurboTax, but if you use their full service, they can prepare the actual forms for you. Much better than trying to figure out the IRS worksheets on your own.

How exactly does this work? They can't possibly be calling the IRS for you because the IRS asks for your personal info. Do they just somehow get you through the phone tree faster?

This sounds like BS honestly. We all know it's impossible to reach the IRS by phone these days. If there was some magic service that could get through, they'd charge hundreds for it. What's the catch here?

They don't call the IRS for you - they use technology to navigate the IRS phone system and hold in line for you. Once they get to the front of the queue, they call you and connect you directly to the IRS agent. The IRS doesn't know you used a service, you're just talking directly to them. The service monitors the IRS phone lines and uses automated technology to stay on hold so you don't have to. When an agent is about to pick up, you get called and connected. I was skeptical too but it worked exactly as described. They can't hear your call or access any of your information - they're just getting you through the wait time.

Thanks, that's helpful! Do you actually submit that insolvency worksheet with your tax return or just keep it for your records? And how detailed do you have to be with listing personal property? Like do I need to estimate the value of my couch and TV separately or just put "household goods: $X amount"?

You don't submit the worksheet with your return - it's just for your own records and in case of an audit. But definitely complete it thoroughly and keep it with your tax documents. For personal property, you don't have to be extremely detailed for each individual item. Grouping them makes sense - "household furnishings: $2,000" or "electronics: $1,500" is fine. Just make reasonable estimates of what you could actually sell these items for (garage sale or Craigslist values), not what you paid for them. And yes, definitely include vehicles, jewelry, tools, anything with value. For retirement accounts, only include what you could actually access (minus penalties) if you had to liquidate them at that time.

Yes, forgiven credit card debt generally counts as cancelled debt and the credit card company should have issued you a 1099-C if it was over $600. If you didn't receive one, they might not have filed it, or it could have been lost in the mail. You're technically supposed to report it as income even without the 1099-C, but you can still claim the insolvency exclusion on Form 982 if you qualify. I'd recommend checking with the debt settlement company to see if a 1099-C was issued. You can also create an account on the IRS website to view all forms that were filed under your SSN.