What this line means
The total dollar amount of canceled debt you are excluding from gross income. This is the amount from your Form 1099-C (or calculated canceled debt) that you are not reporting as taxable income because you checked one of the boxes on line 1. If you checked box 1b (insolvency), this amount cannot exceed the amount by which you were insolvent.
Does this apply to you?
- You checked a box on line 1 and need to report the dollar amount of debt you are excluding
- You received one or more Forms 1099-C and are excluding some or all of the canceled amounts
- You were insolvent and need to enter the lesser of the canceled debt or your insolvency amount
- You had multiple debts canceled and are totaling the excluded amounts across all qualifying cancellations
Easy to overlook
Multiple 1099-C forms may require separate Form 982 calculations If you had debts canceled by different creditors and different exclusions apply (for example, one debt qualifies under insolvency and another under the principal residence exclusion), you may need to file more than one Form 982 or carefully combine the amounts. Each exclusion type has its own limits, and mixing them on a single form leads to errors. 1 IRS Form 982 Instructions — Line 2
The 1099-C amount may not match your actual excluded amount Creditors sometimes report an incorrect amount on Form 1099-C, or the cancellation date may differ from when you became insolvent. If the 1099-C amount is wrong, use the correct figure on line 2 and keep documentation proving the discrepancy. For insolvency, the excluded amount is capped at your insolvency amount regardless of what the 1099-C says. 2 IRS Publication 4681 — Canceled Debts, Foreclosures, Repossessions, and Abandonments
Watch out for this
Entering the full 1099-C amount when you were only partially insolvent. If your liabilities exceeded your assets by $20,000 but the 1099-C shows $35,000 of canceled debt, line 2 is $20,000 — not $35,000. The remaining $15,000 is taxable income reported on your return. This is the single most common error on Form 982 and the one most likely to generate an IRS notice.
Footnotes
-
IRS Form 982 Instructions, Line 2. https://www.irs.gov/instructions/i982 ↩
-
IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, Chapter 1. https://www.irs.gov/pub/irs-pdf/p4681.pdf ↩