Is Form 982 unnecessary for cancelled debt?
Unnecessary given that the potential income and tax bill resulting from this cancelled debt will be eliminated using Form 982. Taxpayers with cancelled debt scenarios should be wary of self-preparing their tax returns.
What is Form 982 and how is it used?
Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, is used to exclude cancelled debt from income due to insolvency and also to indicate a reduction in tax attributes for certain assets, if required. If cancelled debt is excluded from income, you must reduce certain tax attributes by the amount excluded.
What is the insolvency exclusion for nonqualified debt?
The remaining $200,000 of nonqualified debt may qualify in whole or in part for one of the other exclusions, such as the insolvency exclusion. Enter the total amount excluded from your gross income due to discharge of indebtedness under section 108.