A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the “insolvency” exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent.

How do I know if Im insolvent?

You are deemed to be insolvent if your total liabilities (debts) are greater than your total assets. For example, if your total liabilities are $8,000 and your total assets at the time are $6,000 you are insolvent in the amount of $2,000.

What to check on Form 982 if you are insolvent?

You must check box 1a and complete the form as discussed later under A nonbusiness debt. If you are insolvent (and not in a title 11 case), you can elect to follow the insolvency rules by checking box 1b instead of box 1e and completing the form as discussed later under A nonbusiness debt.

What do you need to do to file Form 982?

You must complete and file Form 982 with your tax return to do so. Check the box that says “Discharge of indebtedness to the extent insolvent,” which appears at line 1b. You don’t have to do anything else, but you might want to complete the insolvency worksheet, showing how you arrived at the number,…

How to enter Form 982 in TaxSlayer Pro?

To enter Form 982 in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select: To indicate that canceled debt being passed through on Form K-1 (Form 1065) is being excluded pursuant to IRC section 108 (1), from the Main Menu of the tax return (Form 1040) select:

Can you exclude discharged indebtedness on Form 982?

However, under certain circumstances described in section 108, you can exclude the amount of discharged indebtedness from your gross income. You must file Form 982 to report the exclusion and the reduction of certain tax attributes either dollar for dollar or 33 1 / 3 cents per dollar (as explained later).