Updated November 7, 2026. Quick answer: Part I of Form 982 is where you say why canceled debt is excluded and how much. Line 1a is a title 11 bankruptcy case, 1b insolvency, 1c qualified farm debt, 1d qualified real property business debt and 1e qualified principal residence debt, and line 2 is the total excluded. Line 1e applies only to debt discharged before 2026, or under a written arrangement made before 2026, so a 2026 discharge generally has to fit another box.
What the form does
The instructions open with the general rule and the reason for the form: “Generally, the amount by which you benefit from the discharge of indebtedness is included in your gross income. However, under certain circumstances described in section 108, you can exclude the amount of discharged indebtedness from your gross income.” “File Form 982 with your federal income tax return for a year a discharge of indebtedness is excluded from your income under section 108(a).” The amount that came from a Form 1099-C is explained on the Form 1099-C page.
The five boxes on line 1
Line 1 asks which exclusion applies. Each box has its own limits in the instructions:
| Line | Box on the form | Instructions |
|---|---|---|
| 1a | Discharge in a title 11 case | “A title 11 bankruptcy case is a case under title 11 of the United States Code (including all chapters in title 11 such as chapters 7, 11, and 13).” |
| 1b | Discharge to the extent insolvent (not in a title 11 case) | “Check the box on line 1b if the discharge of indebtedness occurred while you were insolvent.” |
| 1c | Qualified farm indebtedness | “Check this box if the income you exclude is from the discharge of qualified farm indebtedness.” |
| 1d | Qualified real property business indebtedness | “If you check this box, the discharge of qualified real property business indebtedness is applied to reduce the basis of depreciable real property on line 4.” |
| 1e | Qualified principal residence indebtedness | “Only check the box on line 1e if the income you exclude is from discharge of qualified principal residence indebtedness and one of the following applies.” |
How the boxes interact
“The insolvency exclusion doesn’t apply to any discharge that occurs in a title 11 case.” The farm and business real estate boxes have the same limit: “The exclusion relating to qualified farm indebtedness doesn’t apply to a discharge that occurs in a title 11 case or to the extent you were insolvent.” And for a home debt, “If the discharge is in a title 11 case, you can’t check box 1e.” Publication 4681 adds the order of use: “Other exclusions must be applied before the insolvency exclusion.”
Line 1e and the end date for home debt
Line 1e has a date limit in the instructions: “The debt was discharged before 2026.” Or: “The debt was discharged subject to an arrangement that was entered into and evidenced in writing before January 1, 2026.” The ceiling is printed too: “The maximum amount you can treat as qualified principal residence indebtedness is $750,000 ($375,000 if married filing separately) after 2020 and before 2026.” Publication 4681 repeats the date limit in its Reminders: “Qualified principal residence indebtedness can be excluded from income for discharges before January 1, 2026.” These files are the IRS versions served on November 7, 2026; the instructions point to IRS.gov/Form982 for later legislation.
Line 2 and an IRS example
“Enter the total amount excluded from your gross income due to discharge of indebtedness under section 108.” For the insolvency box the amount is capped: “If you were insolvent, don’t include more than the excess of your liabilities over the fair market value of your assets.” The instructions work one case: a $5,000 credit card debt released while liabilities were $10,000 and assets were $7,000. “You were insolvent to the extent of $3,000 ($10,000 of total liabilities minus $7,000 of total assets).” Recomputed: 10,000 minus 7,000 is 3,000, and the smaller of the $5,000 debt and 3,000 is 3,000, which is the figure entered on line 2. The insolvency calculation is laid out on the Insolvency Worksheet page.
Line 3, and what comes after Part I
Line 3 is an election for inventory-like real estate: “You can elect under section 1017(b)(3)(E) to treat all real property held primarily for sale to customers in the ordinary course of a trade or business as if it were depreciable property.” Two Part I and Part II elections are timed: “The election to reduce the basis of depreciable property under section 108(b)(5) and the election made on line 1d of Part I regarding the discharge of qualified real property business indebtedness must be made on a timely filed return (including extensions) and can be revoked only with the consent of the IRS.” What you give up in exchange for the exclusion is on Part II.
Edition
This page reads Form 982 (Rev. March 2018), the Instructions for Form 982 (Rev. December 2021) and Publication 4681 for 2025 returns, all files irs.gov served on November 7, 2026 (sha256 in the kit data). The instructions point to IRS.gov/Form982 for later legislation, and the home-debt exclusion described here has an end date, so check that page before you rely on it for a discharge in 2026 or later.
Common mistakes
- Checking line 1e for a debt discharged in 2026 with no written arrangement made before 2026. The instructions limit the box by date.
- Checking 1a and 1b for the same debt. The insolvency exclusion does not apply to a discharge in a title 11 case.
- Entering the whole discharged amount on line 2 for an insolvency exclusion. The instructions cap it at the extent of insolvency.
- Treating the exclusion as free. Part II reduces tax attributes in exchange.
Related: Form 1099-C boxes explained, and Insolvency Worksheet.
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Answer againSources
- Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (Rev. March 2018): https://www.irs.gov/pub/irs-pdf/f982.pdf
- Instructions for Form 982 (Rev. December 2021): https://www.irs.gov/pub/irs-pdf/i982.pdf
- Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (2025 returns): https://www.irs.gov/pub/irs-pdf/p4681.pdf
Read from the IRS documents linked above on November 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.