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question about form 982

Submitted by on Wed, 03/24/2010 - 14:52
Posts: 202330
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Last year I have decided to get back on my feet and straight out my financial situation once and for good I have decent income but was carrying over the years lot of debts paying minimum or slightly over minimum payment that was taking me nowhere, needless to say I was paying almost $4000 a month in credit card payments and debt did not decreased by penny from month to month, how did I get there? Doesn???t matter at this point, all I can say it did not show up over night I was carrying it year by year hopping that at some point I can pay it off, but couldn???t. I probably paid over these years more in interest that I ever borrow so I decided to cut this by doing settlement.
Last year I settled over $180k paying $50k in settlement, now is time to pay taxes so here is my question, theoretically speaking I should count $130k that was forgiven as income but because my liabilities at the time were more than my asset I???m going to use IRS form 982 to proof my insolvency at that time. Here are some basic numbers
Asset:
- house: $320k
- car 1: $15k
- car 2: $15k
- all other asset: $20k
Total asset: $370k
Liabilities:
- mortgage1: $260k
- mortgaget2: $100k
- car loan1: $15k
- car loan2: $10k
- credit cards debt: $180k
Total liabilities: $565k
Creditors in settlement forgive me and charge off from their books $130k and issued 1099c forms for this amount. I???m assuming because what was forgiven $130k is less then difference between liabilities and asset ($195k) I???m insolvent and won???t have to pay any taxes on those amounts included on 1099c forms, here are my questions:
1. Do I put all 1099c forms on the sides like their never exist and do my taxes on 1040 as usual and when 1040 is ready I do 982 separately including only 1099c forms and do not put any of this numbers on 1040?
2. Or do I include anywhere on 1040 as income those numbers from 1099c forms?
3. Please correct me if I???m wrong but the way I understand this is that on f982 in part 1 I check box b1, and still in Part 1 point 2) total amount of discharged indebtedness excluded from gross income I put $130k (total from all 1099c forms) and nothing anywhere else in Part II and Part III, is this correct assumption?
4. Final question, while I was researching how to approach this some people are saying 982 form is a MUST and others saying I do not even have to do this for all I have to do is write letter explaining in details what exactly happened last year and and why I???m not including those amounts from 1099c as income? Which way is the correct way to do this?