Can anyone explain form 982 for me more, what is insolvency by legal definition?



I do not understand the legal definition of insovency, and the form talks all about farms and owning property. Does anyone know if this is even the right form to talk about money that was written off by medical groups because you are too poor and if it even helps a person not pay taxes on it? What does the form do? It’s purpose?

Can anyone explain form 982 for me more, what is insolvency by legal definition?
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One Reply to “Can anyone explain form 982 for me more, what is insolvency by legal definition?”

  1. You are insolvent when the value of everything that you own is less than your liabilities, i.e. your total debts. If your total assets are worth $ 25,000 (car, clothing, furniture, etc.) and you owe $ 40,000 you are insolvent by $ 15,000. For Form 982, that means that if you have a cancellation of debt for $ 15,000 or less, your COD income would be $ 0. If you had a cancellation of debt of $ 20,000, your COD income would be $ 5,000.

    For purposes of completing the Form 982, you use your balance sheet when the debt was canceled, so the debt that was canceled is included in your liabilities. If you are looking at a significant COD it’s generally a wise idea to retain professional assistance if the cost of the assistance will be less than the tax that you’d have to pay. You can try and tough it out on your own, but if you don’t have a good understanding of basic bookkeeping and accounting concepts it will be difficult.

    See IRS Pub 4681 http://www.irs.gov/pub/irs-pdf/p4681.pdf for further information.





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