Entering Form 1099-C with insolvency (Form 982) in Lacerte

This article explains how to report a canceled debt (Form 1099-C) in Lacerte and how to enter insolvency adjustments using Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.

First, you need to determine if you need to report the 1099-C—and how you need to report it. After that, you can use the steps in this article to enter 1099-C in Lacerte.

Refer to IRS Topic No. 431 - Cancelation of Debt - Is it Taxable or Not to determine whether a debt cancelation is taxable.

Refer to this article for instructions on generating Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness

Follow these steps to enter Form 1099-C as nontaxable:

If the canceled debt was excluded under insolvency or bankruptcy, complete Form 982 to report the exclusion of income and the reduction of tax attributes.

1. Select Screen 14.1, SS Benefits, Alimony, Miscellaneous Inc.
2. Scroll down to the Alimony and Other Income section.
3. Enter the Cancelation of debt (1099-C) as a positive amount.
4. Enter the same amount as a negative amount in Other income (Ctrl+E).
   • For example, if the amount you entered for step 3 was 5,000, you should enter -5,000 for step 4.
   • This will generate a statement on Form 1040, line 8. The statement will show the amounts you enter for steps 3 and 4 offsetting each other.

Follow these steps to reduce a capital loss for Schedule D:

1. Go to Screen 17, Dispositions.
2. Scroll down to the Overrides section.
3. Enter net amount of loss after insolvency in Total gain (loss) [O].

Follow these steps to enter a portion of Form 1099-C as taxable and the rest as nontaxable:

1. Go to Screen 14.1, SS Benefits, Alimony, Miscellaneous Inc.
2. Scroll down to the Alimony and Other Income section.
3. Enter the Cancelation of debt (1099-C) as a positive amount.
4. Enter the nontaxable portion as a negative amount in Other income (Ctrl+E).