What this line means
Check this box if your debt was discharged in a Title 11 bankruptcy case. When you file for bankruptcy and the court discharges your debt, the full amount of canceled debt is excluded from your gross income. You do not need to calculate insolvency or meet any other dollar limit — the entire discharged amount qualifies.
Does this apply to you?
- You filed a bankruptcy petition under Title 11 of the U.S. Code (Chapter 7, 11, 12, or 13)
- You received a Form 1099-C showing canceled debt that was discharged as part of the bankruptcy case
- You have a bankruptcy court order confirming the discharge of the debt
- You want to exclude the full canceled debt amount from your taxable income
Easy to overlook
Debts canceled outside the bankruptcy case do not qualify for this box If a creditor canceled a debt around the same time as your bankruptcy but the cancellation was not part of the court-ordered discharge, that debt does not qualify under line 1a. You would need to use the insolvency exclusion on line 1b instead. Check your discharge order to confirm which debts were included. 1 IRS Publication 4681 — Canceled Debts, Foreclosures, Repossessions, and Abandonments
You must still reduce your tax attributes even though the income is excluded Excluding canceled debt from income is not a free pass. Section 108(b) requires you to reduce tax attributes — NOLs, credits, property basis — by the amount excluded. The tax you avoid now gets recaptured later through smaller deductions and higher gains on asset sales. 2 IRS Form 982 Instructions — Line 1a
Watch out for this
Do not check both box 1a and box 1b. If your debt was discharged in a Title 11 bankruptcy case, you use box 1a exclusively — even if you were also insolvent at the time. The bankruptcy exclusion is more favorable because it has no dollar limit, while the insolvency exclusion caps the amount you can exclude. Checking the wrong box could trigger an IRS notice.
Footnotes
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IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, Chapter 1. https://www.irs.gov/pub/irs-pdf/p4681.pdf ↩
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IRS Form 982 Instructions, Purpose of Form. https://www.irs.gov/instructions/i982 ↩