Form 982 - Reduction Of Tax Attributes Due To Discharge Of Indebtedness (And Section 1082 Basis Adjustment) Page 4

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Form 982 (Rev. 1-2016)

Page

Line 1e

Line 3

Check this box if the income you exclude is from discharge of

You can elect under section 1017(b)(3)(E) to treat all real

qualified principal residence indebtedness. Also, be sure you

property held primarily for sale to customers in the ordinary

complete line 2 (and line 10b if you continue to own the

course of a trade or business as if it were depreciable property.

residence after discharge). However, if the discharge occurs in a

This election doesn’t apply to the discharge of qualified real

title 11 case, you must check the box on line 1a and not this

property business indebtedness. To make the election, check

box. If you are insolvent (and not in a title 11 case), you can

the “Yes” box.

elect to follow the insolvency rules by checking box 1b instead

Part II

of checking this box. For more information, see Pub. 4681.

Principal residence. Your principal residence is your main

Basis Reduction

home, which is the home where you ordinarily live most of the

If you check any of the boxes on lines 1a through 1c, you can

time. You can have only one main home at any one time.

elect, by completing line 5, to apply all or a part of the debt

Qualified principal residence indebtedness. This

discharge amount to first reduce the basis of depreciable

indebtedness is a mortgage you took out to buy, build, or

property (including property you elected on line 3 to treat as

substantially improve your main home. It also must be secured

depreciable property). Any balance of the debt discharge

by your main home. If the amount of your original mortgage is

amount will then be applied to reduce the tax attributes in the

more than the cost of your main home plus the cost of any

order listed on lines 6 through 13 (excluding line 10b). You must

substantial improvements, only the debt that is not more than

attach a statement describing the transactions that resulted in

the cost of your main home plus improvements is qualified

the reduction in basis under section 1017 and identifying the

principal residence indebtedness. Any debt secured by your

property for which you reduced the basis. If you don’t make the

main home that you use to refinance qualified principal

election on line 5, complete lines 6 through 13 (excluding line

residence indebtedness is treated as qualified principal

10b) to reduce your attributes. See section 1017(b)(2) and (c) for

residence indebtedness, but only up to the amount of the old

limitations of reductions in basis on line 10a.

mortgage principal just before the refinancing. Any additional

Line 7

debt you incurred to substantially improve your main home is

also treated as qualified principal residence indebtedness.

If you have a general business credit carryover to or from the tax

Amount eligible for the exclusion. The exclusion applies only

year of the discharge, you must reduce that carryover by 33

to debt discharged after 2006. The maximum amount you can

cents for each dollar excluded from gross income. See Form

treat as qualified principal residence indebtedness is $2 million

3800, General Business Credit, for more details on the general

($1 million if married filing separately). You can’t exclude from

business credit, including rules for figuring any carryforward or

gross income discharge of qualified principal residence

carryback.

indebtedness if the discharge was for services performed for the

Line 10a

lender or on account of any other factor not directly related to a

decline in the value of your residence or to your financial

In the case of a title 11 case or insolvency, the reduction in

condition.

basis is limited to the aggregate of the basis of your property

Ordering rule. If only a part of a loan is qualified principal

immediately after the discharge over the aggregate of your

residence indebtedness, the exclusion applies only to the extent

liabilities immediately after the discharge. However, this limit

the amount discharged exceeds the amount of the loan

doesn’t apply to a reduction in basis reported on line 5 pursuant

(immediately before the discharge) that is not qualified principal

to section 108(b)(5).

residence indebtedness. For example, assume your main home

Line 10b

is secured by a debt of $1 million, of which $800,000 is qualified

principal residence indebtedness. If your main home is sold for

If box 1e is checked and you continue to own the residence

$700,000 and $300,000 of debt is discharged, only $100,000 of

after discharge, enter the smaller of:

the debt discharged can be excluded (the $300,000 that was

discharged minus the $200,000 of nonqualified debt). The

• The part of line 2 that is attributable to the exclusion of

remaining $200,000 of nonqualified debt may qualify in whole or

qualified principal residence indebtedness, or

in part for one of the other exclusions, such as the insolvency

• The basis of your main home.

exclusion.

Part III

Line 2

Adjustment to Basis

Enter the total amount excluded from your gross income due to

discharge of indebtedness under section 108. If you checked

Unless it specifically states otherwise, the corporation, by filing

any box on lines 1b through 1e, don’t enter more than the limit

this form, agrees to apply the general rule for adjusting the basis

explained in the instructions for those lines. If you checked line

of property (as described in Regulations section 1.1082-3(b)).

1a, 1b, or 1c, this amount won’t necessarily equal the total

If the corporation desires to have the basis of its property

reductions on lines 5 through 13 (excluding line 10b) because

adjusted in a manner different from the general rule, it must

the debt discharge amount may exceed the total tax attributes.

attach a request for variation from the general rule. The request

If you checked line 1e, this amount won’t necessarily equal the

must show the precise method used and the allocation of

total basis reduction on line 10b (which is required only if you

amounts.

continue to own the residence after the discharge).

Consent to the request for variation from the general rule will

See section 382(l)(5) for a special rule regarding a reduction of

be effective only if it is incorporated in a closing agreement

a corporation’s tax attributes after certain ownership changes.

entered into by the corporation and the Commissioner of

Internal Revenue under the rules of section 7121. If no

agreement is entered into, then the general rule will apply in

determining the basis of the corporation’s property.

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