Debt discharge is the cancellation of a debt due to bankruptcy. When a debt is discharged, the debtor is no longer liable for the debt and the lender is no longer allowed to make attempts to collect the debt. A debt discharge occurs when a debtor qualifies through bankruptcy court.
Is discharge of indebtedness taxable?
In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.
Debt discharge is the cancellation of a debt due to bankruptcy. When debt is discharged, a lender can no longer make attempts to collect the debt and the debtor is no longer responsible for paying it back.
What is discharge of qualified principal residence indebtedness?
Any debt secured by the principal residence resulting from the refinancing of debt incurred to acquire, construct, or substantially improve a principal residence, but only to the extent that the amount does not exceed the amount of the refinanced indebtedness.
Do you have to complete all lines on Form 982?
Certain individuals may need to complete only a few lines on Form 982. For example, if you are completing this form because of a discharge of indebtedness on a personal loan (such as a car loan or credit card debt) or a loan for the purchase of your principal residence, follow the chart, later, to see which lines you need to complete.
What is excluded from gross income on Form 982?
Include on line 2 the amount of discharged qualified principal residence indebtedness that is excluded from gross income. Any amount in excess of the excluded amount may result in taxable income. See Pub. 4681 for more information.
What does discharge of indebtedness mean on IRS Form 982?
Discharge of Indebtedness. The term discharge of indebtedness conveys forgiveness of, or release from, an obligation to repay. File Form 982 with your federal income tax return for a year a discharge of indebtedness is excluded from your income under section 108 (a).
How to calculate insolvency on a form 982?
For details and a worksheet to help calculate insolvency, see Pub. 4681. Example. You were released from your obligation to pay your credit card debt in the amount of $5,000. The FMV of your total assets immediately before the discharge was $7,000 and your liabilities were $10,000.
