How to Fill Out Form 982 for Credit Card Debt

To fill out Form 982 for credit card debt, check box 1b to claim the insolvency exclusion, put the smaller of your canceled debt or your insolvency amount on line 2, and — if the debt is nonbusiness and you have no loss or credit carryovers — skip the ordered attribute reductions and go straight to line 10a in Part II. Attach the form to your Form 1040 for the tax year shown in Box 1 of your 1099-C. The work that matters most happens before you touch the form: the insolvency worksheet that produces the number on line 2.

Start With the 1099-C

Pull out the 1099-C your creditor sent and look at three boxes. Box 1 is the date of the cancellation event, and it controls which tax year the form belongs to. If Box 1 shows December 2025, Form 982 goes on your 2025 return even if the 1099-C landed in your mailbox in February 2026. Box 2 is the dollar amount of debt canceled. Box 6 carries a one-letter code explaining why: Code F for a negotiated settlement for less than the full balance, Code G for a creditor’s decision to stop collecting and write the balance off, Code A for a bankruptcy discharge.¹

Federal tax law treats forgiven debt as gross income by default.² Form 982 is how you invoke the exception. For credit card debt settled outside bankruptcy, the exception you want is insolvency: if your liabilities exceeded the fair market value of your assets immediately before the cancellation, you can exclude the canceled amount up to the size of that shortfall.³

Do the Insolvency Worksheet First

The insolvency worksheet in IRS Publication 4681 produces the single most important number on Form 982.⁴ The concept is simple: total the fair market value of everything you owned immediately before the cancellation, total every debt you owed at that same moment, and subtract. If debts exceed assets, that difference is your insolvency and the ceiling on what you can exclude.

h3>What Counts as an Asset

The worksheet covers more than most people expect. Bank balances, vehicles, furniture, electronics, clothing, jewelry, retirement accounts, the cash value of life insurance, stocks, security deposits with a landlord, and interests in any business all belong on the asset side. Use fair market value, not what you paid. A five-year-old laptop is worth its resale value, not the $1,200 receipt in your files.

One trap catches filers repeatedly. Assets that creditors legally cannot touch still count. Your 401(k), IRA, and pension balances belong on the worksheet. The IRS states this plainly: “assets include the value of everything you own (including exempt assets, which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account).”⁵ Leaving retirement accounts off overstates your insolvency and invites a challenge.

What Counts as a Liability

Every debt you owed the moment before the cancellation goes on the liability side: mortgages, car loans, student loans, medical bills, other credit card balances, past-due taxes, judgments, utility arrears, business debts. Include the credit card being settled at its full pre-settlement balance, not the reduced payoff figure.

An Example

Say your assets totaled $35,000 and your debts totaled $52,000 immediately before the settlement. You were insolvent by $17,000. If the 1099-C shows $8,000 canceled, you can exclude the whole $8,000, because insolvency ($17,000) exceeds the canceled amount. If insolvency were only $5,000, you could exclude $5,000 and would owe income tax on the remaining $3,000, which goes on Schedule 1 (Form 1040), line 8c.⁴

Part I: Check the Box, Enter the Amount

Part I is short. It has two lines that matter for a credit card settlement.⁶

Line 1b. Check it. This is the insolvency exclusion. Line 1a is for bankruptcy; the other boxes cover farm debt and business real property, none of which apply to a credit card settlement.

Line 2. Enter the smaller of two figures: the canceled debt shown in Box 2 of your 1099-C, or the insolvency amount from your worksheet. The IRS instructions give a worked example directly on point: a $5,000 credit card discharge for a taxpayer with $7,000 in assets and $10,000 in liabilities. Insolvency is $3,000, so line 2 gets $3,000, not the full $5,000.⁷

Part II: The Shortcut Most Credit Card Filers Use

Part II exists to keep you from getting a second benefit from the same excluded dollars. In exchange for excluding canceled debt from income, you reduce certain “tax attributes” by the excluded amount.

If your canceled debt is nonbusiness (credit card debt qualifies) and you have no net operating losses, general business credit carryovers, or capital loss carryovers, the instructions send you past the ordered reduction sequence and directly to line 10a.⁷ A quick check of your prior-year return will tell you whether any of those attributes exist. If phrases like “net operating loss carryover” don’t appear anywhere on your returns, you almost certainly don’t have them.

Line 10a. Enter the smallest of three amounts: (a) the total basis of your property, (b) the excluded amount from line 2, or (c) the excess of your aggregate property basis plus cash over your aggregate liabilities immediately after the discharge. For someone who is deeply insolvent, option (c) often produces zero or a very small number, meaning the required basis reduction is minimal or nothing.

What does a basis reduction mean in practice? If you reduce the basis of your car by $2,000 and later sell it at a gain, the gain is $2,000 larger because of the lower basis. For most people settling credit card debt, this is a marginal future concern next to the immediate tax savings of excluding thousands from current income.

When You Do Have Other Tax Attributes

If you have net operating losses, credit carryovers, or capital losses, the reductions must happen in a specific order set by statute: net operating losses first, then general business credit carryovers, minimum tax credit, capital loss carryovers, property basis, passive activity loss and credit carryovers, and foreign tax credit carryovers.³ Each attribute absorbs as much of the excluded amount as it can before the remainder flows to the next.

Line 5 offers an optional election under Section 108(b)(5) to reduce the basis of depreciable property first, before other attributes. It can help if you own rental property or business equipment and want to preserve loss or credit carryovers. Making the election requires an attached statement identifying the property and the transaction.⁷ Most credit card filers won’t need it.

Attach It to Your Return

Attach the completed Form 982 to your Form 1040 or 1040-SR for the tax year in which the cancellation occurred.⁸ Most tax software walks you through the 1099-C entry and generates the form for you; some software requires a PDF upload. On paper, place Form 982 behind the main return and any schedules.

Do not send the insolvency worksheet or supporting documentation with the return. The IRS asks for those only if it audits or questions the exclusion.⁴ Keep the worksheet, bank statements, loan balance letters, and valuation notes for at least three years from the filing date; six years is safer if you’re worried about a substantial understatement question.

If You Missed a Prior Year

If a 1099-C came in a previous year and you either reported the canceled amount as income or ignored it, you can still claim the exclusion by filing Form 1040-X with Form 982 attached. The window is generally three years from the date you filed the original return, or two years from the date you paid the tax, whichever is later. Form 1040-X can be e-filed for the current or two prior years; older amendments still within the statute must go by paper to the service center where you filed the original.⁹

Document the Worksheet Like You’ll Need to Defend It

If the IRS later decides you weren’t insolvent, or weren’t insolvent by as much as you claimed, the excluded amount becomes taxable and a 20% accuracy-related penalty can be added to the underpayment.¹⁰ The worksheet is your defense. Every asset value and every liability should be backed by something you can produce years later: statements, balance letters, valuation notes. Where exact values are hard to pin down, use conservative estimates and write down how you got there. A documented worksheet with real numbers is far less likely to draw scrutiny than round figures with no backup.

1
Internal Revenue Service. Form 1099-C – Cancellation of Debt
2
Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined
3
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
4
Internal Revenue Service. Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments
5
Internal Revenue Service. Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments – Section: Insolvency
6
Internal Revenue Service. Instructions for Form 982 – Section: Purpose of Form
7
Internal Revenue Service. Instructions for Form 982
8
Internal Revenue Service. Instructions for Form 982
9
Internal Revenue Service. Time You Can Claim a Credit or Refund
10
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments