Updated November 7, 2026. Quick answer: Part II of Form 982 is the price of the exclusion: the excluded amount reduces your tax attributes in a set order. Net operating losses come first, then general business credit carryovers, the minimum tax credit, net capital losses, the basis of property, passive activity losses and credits, and foreign tax credit carryovers. Losses and basis go dollar for dollar; credits go at 33 1/3 cents per dollar excluded.
What Part II says
The form’s own heading for the lines is “Enter amount excluded from gross income:” so the entries on lines 4 to 13 are amounts of the exclusion applied to each attribute. The instructions give the default order: “Use Part II to report your reduction of tax attributes.” “The reduction must be made in the following order unless you check the box on line 1d for qualified real property business indebtedness or make the election on line 5 to reduce basis of depreciable property first.”
The order, line by line
The instructions print seven steps. Their rate language is typeset as a fraction and extracts as 331/3 in the PDF text; it means 33 1/3 cents per dollar.
| Step | Form 982 line | Attribute | Rate |
|---|---|---|---|
| 1 | 6 | “Any net operating loss (NOL) for the tax year of the discharge (and any NOL carryover to that year) (dollar for dollar)” | dollar for dollar |
| 2 | 7 | General business credit carryover to or from the year of the discharge | 33 1/3 cents per dollar |
| 3 | 8 | Minimum tax credit as of the beginning of the next tax year | 33 1/3 cents per dollar |
| 4 | 9 | “Any net capital loss for the tax year of the discharge (and any capital loss carryover to that tax year) (dollar for dollar)” | dollar for dollar |
| 5 | 10a, 10b, 11a to 11c | “The basis of property (dollar for dollar)” | dollar for dollar |
| 6 | 12 | Passive activity loss carryovers (dollar for dollar) and credit carryovers (33 1/3 cents per dollar) | both rates |
| 7 | 13 | Foreign tax credit carryover to or from the year of the discharge | 33 1/3 cents per dollar |
The basis election on line 5
You can move basis to the front: “If you check any of the boxes on lines 1a through 1c, you can elect, by completing line 5, to apply all or a part of the debt discharge amount to first reduce the basis of depreciable property (including property you elected on line 3 to treat as depreciable property).” The election needs a statement: “You must attach a statement describing the transactions that resulted in the reduction in basis under section 1017 and identifying the property for which you reduced the basis.” And line 4 is the home for the 1d box: the discharge of qualified real property business debt is applied to reduce the basis of depreciable real property there.
Illustration with invented numbers
Illustration, not an IRS example, computed from invented inputs, following the instructions’ order: an individual excludes $10,000 with a $4,000 net operating loss and a $1,500 general business credit carryover, and makes no line 5 election. Line 6 takes the smaller of the loss and the exclusion, $4,000 (computed), leaving $6,000 (computed, $10,000 minus $4,000). Credits are reduced by a third of a dollar per dollar excluded, so the carryover can absorb at most $4,500 (computed, $1,500 times 3). Line 7 is therefore the smaller of $6,000 and $4,500, which is $4,500 (computed), the credit carryover is reduced by $1,500 (computed, $4,500 divided by 3), here to zero, and $1,500 (computed, $6,000 minus $4,500) is left to apply to the next attributes in the order. The dollar limits on basis reductions in section 1017 can change a real case; the instructions send you to them.
| Line | Attribute | Amount of the exclusion applied |
|---|---|---|
| 6 | Net operating loss | $4,000 (computed) |
| 7 | General business credit carryover (excluded dollars applied) | $4,500 (computed) |
| Left | Applied to later attributes | $1,500 (computed) |
Basis on line 10a and line 10b
For most individuals with a personal debt, the instructions give a short path: “Include on line 10a the smallest of (a) the basis of your nondepreciable property, (b) the amount of the nonbusiness debt included on line 2, or (c) the excess of the aggregate bases of the property and the amount of money you held immediately after the discharge over your aggregate liabilities immediately after the discharge.” Line 10b is for a home you keep: “If you continue to own your residence after the discharge, enter on line 10b the smaller of (a) the amount of qualified principal residence indebtedness included on line 2, or (b) the basis (generally, your cost plus improvements) of your principal residence.” Line 10a also has a limit for bankruptcy and insolvency: “In the case of a title 11 case or insolvency, the reduction in basis is limited to the aggregate of the basis of your property immediately after the discharge over the aggregate of your liabilities immediately after the discharge.”
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. The credit rate is the instructions’ 33 1/3 cents (printed as a fraction); no other rate is stated here.
Common mistakes
- Skipping Part II because Part I already shows the exclusion. The entries on lines 6 to 13 are the reduction of attributes that the exclusion requires.
- Applying credits dollar for dollar. The instructions use 33 1/3 cents per dollar excluded for credit carryovers.
- Forgetting the line 5 statement. The election to reduce depreciable basis first needs the attached description of the transactions.
- Entering the credit carryover that is lost on line 7. The line holds the amount of the exclusion applied, so the credit reduction is a third of the line 7 entry.
Related: Form 982 Part I, and Form 3800.
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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
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.