16 Nov Reporting 1099-C income, cancellation of debt income exclusion – IRS form 982
Debt that is forgiven is considered income for taxes purposes and is reportable to the IRS. The debt forgiven is reported by the lender to the IRS on form 1099-C. The debt forgiven is reported by the taxpayer as other income on Form 1040, Line 21. Taxpayers can exclude the debt forgiveness if it qualifies as qualified principal residence indebtedness before January 1, 2013 [§108(a)(1)]. The exclusion is taken on Form 982 – Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1802 Basis Adjustment)
Interesting side note…… The new significantly modified debt will generate debt forgiveness income if the new debt is less than the balance of the old debt under §108(e). The basis of the taxpayer’s principal residence is then reduced by the amount of the income excluded using Form 982 [§108(h)(1)].