If you receive a Form 1099-C, Cancellation of Debt, the IRS generally treats the canceled debt as taxable income. That's because you received a financial benefit when the lender forgave or canceled the amount you owed.
In some situations, however, you may not have to include all or part of that canceled debt in your taxable income. If you qualify, Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, can be used to exclude or reduce the amount that would otherwise be taxable.
Common situations that may allow you to exclude canceled debt include bankruptcy, insolvency, certain qualified farm debts, and other IRS-approved exceptions.
When Should You File Form 982?
You may need to file Form 982 if:
- You received a Form 1099-C reporting canceled debt.
- You qualify for an IRS exclusion that allows you to avoid reporting some or all of that canceled debt as income.
- You need to reduce certain tax attributes as required by IRS rules after excluding canceled debt income.
Because the rules can be complex, it's important to review the IRS instructions carefully before claiming an exclusion.
Entering Form 982 in TaxSlayer
To report a Form 1099-C and determine whether you qualify for an exclusion, navigate to:
- Federal
- Income (Select my forms)
- Less Common Income
- Cancellation of Debt Form 1099-C, Form 982
- Exclusions (Form 982)