Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)
Form 982 is filed with your tax return to report the exclusion of discharged debt from your gross income under specific circumstances outlined in Internal Revenue Code Section 108. In simpler terms, if you have debt forgiven, you might not owe taxes on that amount, but there's a catch - you may have to reduce certain tax benefits.
When to File Form 982?
- You received a Form 1099-C, Cancellation of Debt, indicating forgiven debt.
- You qualify to exclude the discharged debt from your income under specific provisions of the tax code, typically due to bankruptcy (Title 11 case) or insolvency.
Common Reasons to Exclude Debt Cancellation from Income
A. Title 11 Bankruptcy: If your debt was discharged during a Chapter 7 bankruptcy proceeding, you can generally exclude it from income.
B. Insolvency: You might be able to exclude forgiven debt if you were insolvent at the time of discharge, meaning your liabilities exceeded your assets.
C. Business Debt Restructuring: In some cases, business debt restructuring can qualify for debt exclusion.
Commonly Reduced Tax Attributes:
A. Net Operating Losses (NOLs): NOLs are past business losses that can be used to reduce taxable income in future years. When you file Form 982, the IRS may reduce your NOL carryover.
B. Depreciation Basis: The depreciation basis is the original cost of an asset used to calculate depreciation deductions. Filing Form 982 might lead to a reduction in the basis of your depreciable assets, lowering future depreciation deductions.
C. General Business Credits: These credits can offset your tax liability. Filing Form 982 may limit the amount of certain business credits you can claim.
Do I need to file Form 982 if I didn't receive a Form 1099-C?
Generally, no. If there's no discharged debt reported on a Form 1099-C, you likely don't have any debt exclusion to report and wouldn't need Form 982.
What happens if I don't file Form 982?
The IRS might disallow the exclusion of discharged debt from your income, leading to a higher tax bill and potential penalties.