Form 982: What is a "discharge of qualified real property business indebtedness"?

If a business real estate loan is canceled or forgiven, you may be able to exclude some or all of the canceled debt from your taxable income. This exclusion is known as a discharge of qualified real property business indebtedness (QRPBI) and is reported on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.

What Is Qualified Real Property Business Indebtedness?

Qualified real property business indebtedness is debt that meets all of the following requirements:

1. The debt was incurred or assumed in connection with real property used in a trade or business.
2. The debt is secured by that real property.
3. The debt was:
   • Incurred or assumed before January 1, 1993, or
   • Incurred after 1992 and qualifies as:
     • Qualified acquisition indebtedness, or
     • Refinanced qualified real property business debt that was originally incurred or assumed before 1993 (but only up to the amount of the original debt being refinanced).
4. You elect to apply the qualified real property business indebtedness exclusion.

What Is Qualified Acquisition Indebtedness?

Qualified acquisition indebtedness is debt that was used to:

• Acquire, construct, reconstruct, or substantially improve real property used in a trade or business, and
• Is secured by that property.

It also includes debt used to refinance qualified acquisition indebtedness, as long as the refinanced balance does not exceed the amount of the debt being replaced.

How Much Canceled Debt Can Be Excluded?

The amount of canceled debt you can exclude is subject to IRS limitations. In general, the exclusion is limited based on:

• The outstanding principal balance of the qualified debt immediately before the cancellation, and
• The adjusted basis of your depreciable real property.

Because the calculation can be complex, review IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments for detailed guidance on the exclusion limits.

How to Report the Exclusion in Our Software

To enter a discharge of qualified real property business indebtedness:

1. Go to Federal.
2. Select Income.
3. Choose Select my forms.
4. Select Less Common Income.
5. Open Cancellation of Debt (Form 1099-C, Form 982).
6. Select Exclusions (Form 982) and enter your information.

Do I Have to Report Canceled Debt as Income?

Usually, canceled debt is taxable and must be included in your income. However, if the canceled debt qualifies as a discharge of qualified real property business indebtedness and you make the appropriate election on Form 982, you may be able to exclude the canceled amount from income.

This exclusion primarily applies to business real estate debt and is not available for most personal debts.

Additional Resources

For more information, see:

• IRS Form 982 Instructions
• IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments

These resources can help you determine whether your canceled debt qualifies and how much can be excluded from your taxable income.