Form 982: Excluding Discharged Debt and Reducing Tax Attributes

Form 982 is attached to your federal income tax return when a discharge of debt is excluded from your gross income. The form reports the exclusion. It also reports any reduction of certain tax attributes that follows from the exclusion. The full form title is Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).

This post is general information from the form (Rev. March 2018) and its instructions (Rev. December 2021). The instructions say they are for use with that form edition. Check irs.gov/Form982 for later changes. This post does not tell you what to do in your case.

When the form applies

The instructions say you must file Form 982 with your federal income tax return for a year in which a discharge of indebtedness is excluded from income under section 108(a). Generally, the amount you benefit from a debt discharge is included in gross income. Section 108 allows an exclusion in certain circumstances.

A debt that is canceled does not always mean you owe no tax. The instructions say that some exclusions reduce other tax benefits later. Form 982 is where you report those reductions.

Part I: the reason for the exclusion

Line 1 has five boxes. Check the box that matches the reason the debt is excluded:

• Box 1a: a discharge in a title 11 case, which is a bankruptcy case.
• Box 1b: a discharge to the extent you were insolvent, in a case that is not a title 11 case.
• Box 1c: discharge of qualified farm indebtedness.
• Box 1d: discharge of qualified real property business indebtedness.
• Box 1e: discharge of qualified principal residence indebtedness.

Line 2 is the total amount of discharged debt excluded from gross income. Line 3 asks whether you elect to treat certain real property held for sale as depreciable property.

Title 11 and insolvency

The instructions say a title 11 case is a case under the bankruptcy part of the U.S. Code, but only if you are under the court's jurisdiction and the discharge is granted by the court or under a plan the court approved.

Insolvency is a separate test. The instructions give an example: total assets worth $7,000 and liabilities of $10,000 make a taxpayer insolvent to the extent of $3,000. For a nonbusiness debt, the instructions say that if you were insolvent, line 2 cannot include more than the excess of your liabilities over the fair market value of your assets.

If you are insolvent and not in a title 11 case, the instructions say to check box 1b instead of box 1e, and to follow the insolvency rules.

A short path for personal debt

The instructions say that some individuals complete only a few lines. For example, if the debt is a car loan or a credit card debt, the chart in the instructions tells you which lines to complete. Start with box 1a or 1b, and enter the excluded amount on line 2.

The short path applies only if you do not have any of the tax attributes listed in Part II, other than basis in nondepreciable property. If you do have one, follow the longer instructions for other debt.

Part II: the order of the reduction

Part II reports the reduction of tax attributes. The instructions list seven items, in this order unless an election or box changes the order:

• A net operating loss for the year of the discharge, or one carried into that year, dollar for dollar.
• A general business credit carryover, at 33 1/3 cents per dollar.
• A minimum tax credit, at 33 1/3 cents per dollar.
• A net capital loss, dollar for dollar.
• The basis of property, dollar for dollar.
• Passive activity loss carryovers, dollar for dollar, and credit carryovers, at 33 1/3 cents per dollar.
• A foreign tax credit carryover, at 33 1/3 cents per dollar.

Part III: the corporate consent

Part III is for a corporation's consent to a basis adjustment under section 1082(a)(2), where the corporation excluded amounts under section 1081(b).

Making the election on time

The instructions say that the election on line 1d, and the election to reduce depreciable basis under section 108(b)(5), must be made on a timely filed return, including extensions. They can be revoked only with the consent of the IRS.

If you filed on time without making either election, you can still make it by filing an amended return within 6 months of the due date of the return, not counting extensions. Write "Filed pursuant to section 301.9100-2" on the amended return, and file it where you filed the original.

Check the current rules

The instructions say that the exclusion for qualified principal residence indebtedness covers discharges before January 1, 2026, and some discharges under arrangements evidenced in writing before that date. That date has passed. Before you check box 1e, read the current IRS page for Form 982 and the instructions for the year of the discharge.

For more detail on canceled debts, the instructions refer to Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Related posts

For the information return a lender may send when a debt is canceled, read Canceled Debt and Form 1099-C: Is It Taxable Income?.

Sources: Sources: IRS, Form 982 (Rev. March 2018) (https://www.irs.gov/pub/irs-pdf/f982.pdf); Instructions for Form 982 (Rev. December 2021) (https://www.irs.gov/pub/irs-pdf/i982.pdf) This is general information, not advice about your specific return.

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