MY LUXURY HOMES OF LAS VEGAS - THE MORTGAGE FORGIVENESS DEBT RELIEF ACT

Mantas Raulickis LUXURY HOMES DIVISION

Realty ONE Group, INC www.MyLuxuryHomesofLasVegas.com

Ten Facts about Mortgage Debt Forgiveness

IRS Tax Tip 2010-44

If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim

special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief

Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be

secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify

for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was

forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be

applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of

any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your

home in Box 7.

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain

a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676).



The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in

connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is

due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures,

Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation: What is Cancellation of Debt?

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed

the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally

reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the

lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief

Act of 2007 and applies to most homeowners.

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be

taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly

engaged in lending, your cancelled debt is generally not considered taxable income.

Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default

is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you

personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

These exceptions are discussed in detail in Publication 4681.

What is the Mortgage Forgiveness Debt Relief Act of 2007?

http://www.irs.gov/pub/irs-pdf/p4681.pdf

http://www.irs.gov/irs/article/0,,id=179073,00.html



The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the

mortgage, or foreclosure on your principal residence. What does exclusion of income mean?

Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is

taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven

in connection with a foreclosure, qualifies for the relief. Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?

No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal

residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified

principal residence indebtedness is $2 million or $1 million if married filing separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?

Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an

example, see Publication 4681. How long is this special relief in effect?

It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded

from income?

The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if

married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?

Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.

Do I have to complete the entire Form 982?

No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence

indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If

you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?

If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.

How do I know or find out how much debt was forgiven?

Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown

in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982. Can I exclude debt forgiven on my second home, credit card or car loans?

Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance

debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details. If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?

Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include

http://www.irs.gov/pub/irs-pdf/f982.pdf



forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11

bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication

4681 discusses each of these exceptions and includes examples. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?

No. Losses from the sale or foreclosure of personal property are not deductible.

If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?

Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must

generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were

insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a

disaster in a Midwestern disaster area. See Form 982 for details.

If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence

exclusion, even though I no longer own my residence?

Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of

Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Will I receive notification of cancellation of debt from my lender?

Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or

more. The amount cancelled will be in box 2 of the form. What if I disagree with the amount in box 2?

Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.

How do I report the forgiveness of debt that is excluded from gross income?

(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter

the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.

(2) File Form 982 with your tax return.

My student loan was cancelled; will this result in taxable income?

In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this

obligation. Are there other conditions I should know about to exclude the cancellation of student debt?

Yes, your student loan must have been made by:

(a) the federal government, or a state or local government or subdivision;

(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the

employees are considered public employees; or

(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or

educational organization.

Can I exclude cancellation of credit card debt?

In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation



occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681.

How do I know if I was insolvent?

You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other

investments, or your pension and other retirement accounts. How should I report the information and items needed to prove insolvency?

Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis

Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets

immediately before the cancellation.

To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent

immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982. My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?

Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the

cancellation. See Publication 4681 for examples. Are there any publications I can read for more information?

Yes.

(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.

(2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov.

http://www.irs.gov/pub/irs-pdf/p4681.pdf

http://www.irs.gov/irs/article/0,,id=179073,00.html

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PAGER/SGML Fileid: ...orms, Pubs, and Instr\2009 Assignments\1099-A\Instr\10I1099AC.SGM (Init. & date)

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Department of the TreasuryInternal Revenue Service2010

Instructions for Forms1099-A and 1099-C

is an exempt foreign person (unless the lender knows that theSection references are to the Internal Revenue Code unlessstatement is false).otherwise noted.

Who Must FileIn addition to the general rule specified above, the followingWhat’s Newrules apply.

Truncating borrower/debtor identification number on paper Multiple owners of a single loan. If there are multiple owners ofpayee statements. Notice 2009-93 allows filers of Forms 1099-A undivided interests in a single loan, such as in pools, fixedand 1099-C to truncate a borrower’s (Form 1099-A) or debtor’s investment trusts, or other similar arrangements, the trustee, record(Form 1099-C) identification number (social security number (SSN), owner, or person acting in a similar capacity must file Form 1099-Aindividual taxpayer identification number (ITIN), or adoption on behalf of all the owners of beneficial interests or participations.taxpayer identification number (ATIN)) on paper payee statements In this case, only one form for each borrower must be filed onfor tax years 2009 and 2010. See part M in the 2010 General behalf of all owners with respect to the loan. Similarly, for bondInstructions for Certain Information Returns (Forms 1098, 1099, issues, only the trustee or similar person is required to report.3921, 3922, 5498, and W-2G).

Governmental unit. A governmental unit, or any of its subsidiaryagencies, that lends money secured by property must file FormReminder 1099-A.

In addition to these specific instructions, you should also use the Subsequent holder. A subsequent holder of a loan is treated as a2010 General Instructions for Certain Information Returns. Those lender and is required to report events occurring after the loan isgeneral instructions include information about the following topics. transferred to the new holder.• Backup withholding.

Multiple lenders. If more than one person lends money secured• Electronic reporting requirements.by property and one lender forecloses or otherwise acquires an• Penalties.interest in the property and the sale or other acquisition terminates,• Who must file (nominee/middleman).reduces, or otherwise impairs the other lenders’ security interests in• When and where to file.the property, the other lenders must file Form 1099-A for each of• Taxpayer identification numbers.their loans. For example, if a first trust holder forecloses on a• Statements to recipients.building, and the second trust holder knows or has reason to know• Corrected and void returns.of such foreclosure, the second trust holder must file Form 1099-A• Other general topics.for the second trust even though no part of the second trust was

You can get the general instructions from the IRS website at satisfied by the proceeds of the foreclosure sale.www.irs.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

AbandonmentAn abandonment occurs when the objective facts and

Specific Instructions for Form 1099-A circumstances indicate that the borrower intended to and haspermanently discarded the property from use. You have “reason toFile Form 1099-A, Acquisition or Abandonment of Securedknow” of an abandonment based on all the facts and circumstancesProperty, for each borrower if you lend money in connection withconcerning the status of the property. You will be deemed to knowyour trade or business and, in full or partial satisfaction of the debt,all the information that would have been discovered through ayou acquire an interest in property that is security for the debt, orreasonable inquiry when, in the ordinary course of business, youyou have reason to know that the property has been abandoned.become aware or should become aware of circumstancesYou need not be in the business of lending money to be subject toindicating that the property has been abandoned. If you expect tothis reporting requirement.commence a foreclosure, execution, or similar sale within 3 monthsof the date you had reason to know that the property wasCoordination With Form 1099-Cabandoned, reporting is required as of the date you acquire an

If, in the same calendar year, you cancel a debt in connection with interest in the property or a third party purchases the property ata foreclosure or abandonment of secured property, it is not such sale. If you expect to but do not commence such action withinnecessary to file both Form 1099-A and Form 1099-C, Cancellation 3 months, the reporting requirement arises at the end of theof Debt, for the same debtor. You may file Form 1099-C only. You 3-month period.will meet your Form 1099-A filing requirement for the debtor bycompleting boxes 4, 5, and 7 on Form 1099-C. However, if you file Statements to Borrowersboth Forms 1099-A and 1099-C, do not complete boxes 4, 5, and 7

If you are required to file Form 1099-A, you must provide aon Form 1099-C. See the instructions for Form 1099-C on page 2.statement to the borrower. Furnish a copy of Form 1099-A or anacceptable substitute statement to each borrower. For morePropertyinformation about the requirement to furnish a statement to the

Property means any real property (such as a personal residence), borrower, see part M in the 2010 General Instructions for Certainany intangible property, and tangible personal property except: Information Returns.• No reporting is required for tangible personal property (such as a

Account Numbercar) held only for personal use. However, you must file Form1099-A if the property is totally or partly held for use in a trade or The account number is required if you have multiple accounts for abusiness or for investment. borrower for whom you are filing more than one Form 1099-A.• No reporting is required if the property securing the loan is Additionally, the IRS encourages you to designate an accountlocated outside the United States and the borrower has furnished number for all Forms 1099-A that you file. See part L in the 2010the lender a statement, under penalties of perjury, that the borrower General Instructions for Certain Information Returns.

Cat. No. 27991U

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Form 1099-C must be filed regardless of whether the debtorBox 1. Date of Lender’s Acquisition oris required to report the debt as income.Knowledge of Abandonment CAUTION

!For an acquisition, enter the date you acquired the secured

The debtor may be an individual, corporation, partnership, trust,property. An interest in the property generally is acquired on theestate, association, or company.earlier of the date title is transferred to the lender or the date

Do not combine multiple cancellations of a debt to determinepossession and the burdens and benefits of ownership arewhether you meet the $600 reporting requirement unless thetransferred to the lender. If an objection period is provided by law,separate cancellations are under a plan to evade the Form 1099-Cuse the date the objection period expires. If you purchase therequirements.property at a sale held to satisfy the debt, such as at a foreclosure

or execution sale, use the later of the date of sale or the date theborrower’s right of redemption, if any, expires. Coordination With Form 1099-A

If, in the same calendar year, you cancel a debt of $600 or more inFor an abandonment, enter the date you knew or had reason toconnection with a foreclosure or abandonment of secured property,know that the property was abandoned unless you expect toit is not necessary to file both Form 1099-A, Acquisition orcommence a foreclosure, execution, or similar action within 3Abandonment of Secured Property, and Form 1099-C for the samemonths, as explained earlier. If a third party purchases the propertydebtor. You may file Form 1099-C only. You will meet your Format a foreclosure, execution, or similar sale, the property is treated1099-A filing requirement for the debtor by completing boxes 4, 5,as abandoned, and you have reason to know of its abandonmentand 7 on Form 1099-C. However, you may file both Forms 1099-Aon the date of sale.and 1099-C; if you do, do not complete boxes 4, 5, and 7 on Form1099-C. See the instructions for Form 1099-A on page 1 and Box 4,Box 2. Balance of Principal OutstandingBox 5, and Box 7 on page 4.Enter the balance of the debt outstanding at the time the interest in

the property was acquired or on the date you first knew or had Who Must Filereason to know that the property was abandoned. Include only

File Form 1099-C if you are:unpaid principal on the original debt. Do not include accrued1. A financial institution described in section 581 or 591(a)interest or foreclosure costs.

(such as a domestic bank, trust company, building and loan orsavings and loan association).Box 3. Reserved

2. A credit union.3. Any of the following, its successor, or subunit of one of theBox 4. Fair Market Value (FMV) of Property

following:For a foreclosure, execution, or similar sale, enter the FMV of the

a. Federal Deposit Insurance Corporation,property. See Temporary Regulations section 1.6050J-1T, Q/A-32.b. Resolution Trust Corporation,Generally, the gross foreclosure bid price is considered to be thec. National Credit Union Administration,FMV. If an abandonment or voluntary conveyance to the lender ind. Any other federal executive agency, including governmentlieu of foreclosure occurred, check “Yes” in box 5 and enter the

corporations,appraised value of the property. Otherwise, make no entry in thise. Any military department,box.f. U.S. Postal Service, org. Postal Rate Commission.Box 5. Was Borrower Personally Liable for 4. A corporation that is a subsidiary of a financial institution or

Repayment of the Debt credit union, but only if, because of your affiliation, you are subjectto supervision and examination by a federal or state regulatoryEnter an “X” in the applicable box to indicate whether the borroweragency.was personally liable for repayment of the debt at the time the debt

5. A federal government agency including:was created or, if modified, at the time of the last modification.a. A department,b. An agency,Box 6. Description of Propertyc. A court or court administrative office, orEnter a general description of the property. For real property,d. An instrumentality in the judicial or legislative branch of thegenerally you must enter the address of the property, or, if the

government.address does not sufficiently identify the property, enter the section,6. Any organization whose significant trade or business is thelot, and block.

lending of money, such as a finance company or credit cardFor personal property, enter the applicable type, make, and company (whether or not affiliated with a financial institution). The

model. For example, describe a car as “Car—2008 Honda Accord.” lending of money is a significant trade or business if money is lentUse a category such as “Office Equipment” to describe more than on a regular and continuing basis. Regulations sectionone piece of personal property, such as six desks and seven 1.6050P-2(b) lists three safe harbors under which reporting may notcomputers. Enter “CCC” for crops forfeited on Commodity Credit be required for the current year. See Safe harbor rules below.Corporation loans.

Safe harbor rules. The three safe harbor rules in which an entitywill not be considered to have a significant trade or business oflending money are:Specific Instructions for Form 1099-C

1. No prior year reporting required. An organization will nothave a significant trade or business of lending money for theThe Creditor’s phone number must be provided in thecurrent year if the organization was not required to report in theCreditor’s information box. It should be a central number forprior year and if its gross income from lending money in the mostall canceled debts at which a person may be reached whoCAUTION

!recent test year (see item 3 below) is less than both 15% of thewill insure the debtor is connected with the correct department.organization’s gross income and $5 million.

2. Prior year reporting requirement. An organization that had aDo not file Form 1099-C when fraudulent debt is canceledprior year reporting requirement will not have a significant trade ordue to identity theft. Form 1099-C is to be used only forbusiness of lending money for the current year if, for each of the 3cancellations of debts for which the debtor actually incurredCAUTION

!most recent test years, its gross income from lending money is lessthe underlying debt.than both 10% of the organization’s gross income and $3 million.

File Form 1099-C, Cancellation of Debt, for each debtor for 3. No test year. Newly formed organizations are considered notwhom you canceled a debt owed to you of $600 or more only if: to have a significant trade or business of lending money even if the

1. You are an entity described under Who Must File on this organization lends money on a regular and continuing basis.page and However, this safe harbor does not apply to an entity formed or

2. An identifiable event has occurred. It does not matter availed of for the principal purpose of holding loans acquired orwhether the actual cancellation is on or before the date of the originated by another entity. In this instance, the transferee entityidentifiable event. See When Is a Debt Canceled on page 3. (including real estate mortgage investment conduits (REMICs) and

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pass-through securitized indebtedness arrangements) may be 4. A cancellation or extinguishment when the creditor electsrequired to report cancellation of indebtedness on Form 1099-C. foreclosure remedies that by law end or bar the creditor’s right toSee Regulations section 1.6050P-1(e)(5). collect the debt. This event applies to a mortgage lender or holder

who is barred by local law from pursuing debt collection after aTest year defined. A test year is a taxable year of the “power of sale” in the mortgage or deed of trust is exercised.organization that ends before July 1 of the previous calendar year. 5. A cancellation or extinguishment due to a probate or similarFor example, X, a calendar year taxpayer who has a significant proceeding.trade or business of lending money, is formed in year one. X will 6. A discharge of indebtedness under an agreement betweennot have a test year in year one or year two. However, for year the creditor and the debtor to cancel the debt at less than fullthree, X’s test year will be year one. In year three, year one is the consideration.only year that ended before July 1 of the previous calendar year (in 7. A discharge of indebtedness because of a decision or athis example, year two). defined policy of the creditor to discontinue collection activity andPenalties. There are penalties for failure to file correct information cancel the debt. A creditor’s defined policy can be in writing or anreturns by the due date and for failure to furnish correct payee established business practice of the creditor. A creditor’s practice tostatements. See part O in the 2010 General Instructions for Certain stop collection activity and abandon a debt when a particularInformation Returns for details. nonpayment period expires is a defined policy.

Exceptions. Until further guidance is issued, no penalty will 8. The expiration of nonpayment testing period. This appliesapply for failure to file Form 1099-C, or provide statements to only to entities described in numbers 1, 2, 3, and 4 under Who Mustdebtors, for amounts: File on page 2. This event occurs when the creditor has not• Discharged in nonlending transactions or received a payment on the debt during the testing period. The• Forgiven pursuant to the terms of a debt obligation. testing period is a 36-month period ending on December 31 plus

any time when the creditor was precluded from collection activity byMultiple creditors. If a debt is owned (or treated as owned fora stay in bankruptcy or similar bar under state or local law. Thefederal income tax purposes) by more than one creditor, eachcreditor can rebut the occurrence of this identifiable event if:creditor that is described under Who Must File on page 2 must

issue a Form 1099-C if that creditor’s part of the canceled debt is a. The creditor (or a third-party collection agency) has engaged$600 or more. A creditor will be deemed to have met its filing in significant bona fide collection activity during the 12-month periodrequirements if a lead bank, fund administrator, or other designee ending on December 31 orof the creditor complies on its behalf. The designee may file a b. Facts and circumstances that exist on January 31 followingsingle Form 1099-C reporting the aggregate canceled debt or may the end of the 36-month period indicate that the debt was notfile Form 1099-C for that creditor’s part of the canceled debt. Use canceled.any reasonable method to determine the amount of each creditor’s Significant bona fide collection activity does not include nominalpart of the canceled debt. or ministerial collection action, such as an automated mailing. Facts

and circumstances indicating that a debt was not canceled includeDebt owned by a partnership is treated as owned by thethe existence of a lien relating to the debt (up to the value of thepartners and must follow the rules for multiple creditors.security) or the sale or packaging for sale of the debt by thePass-throughs and REMICs. Until further guidance is issued, nocreditor.penalty will apply for failure to file Form 1099-C, or provide

statements to debtors, for a canceled debt held in a pass-throughsecuritized debt arrangement or held by a REMIC. However, see Exceptionsitem 3 under Safe harbor rules on page 2.

You are not required to report on Form 1099-C the following:A pass-through securitized debt arrangement is any

1. Certain bankruptcies. You are not required to report a debtarrangement in which one or more debts are pooled and held for 20discharged in bankruptcy unless you know from informationor more persons whose interests in the debt are undividedincluded in your books and records that the debt was incurred forco-ownership interests that are freely transferable. Co-ownershipbusiness or investment purposes. If you are required to report ainterests that are actively traded personal property (as defined inbusiness or investment debt discharged in bankruptcy, report it forRegulations section 1.1092(d)-1) are presumed to meet thesethe later of:requirements.

a. The year in which the amount of discharged debt first can beDebt Defined determined or

b. The year in which the debt is discharged in bankruptcy.A debt is any amount owed to you including stated principal, statedA debt is incurred for business if it is incurred in connection withinterest, fees, penalties, administrative costs, and fines. The

the conduct of any trade or business other than the trade oramount of debt canceled may be all or only part of the total amountbusiness of performing services as an employee. A debt is incurredowed. However, for a lending transaction, you are required to reportfor investment if it is incurred to purchase property held foronly the stated principal. See Exceptions on this page.investment (as defined in section 163(d)(5)).

When To File 2. Interest. You are not required to report interest. However, ifyou choose to report interest as part of the canceled debt in box 2,Generally, file Form 1099-C for the year in which an identifiableyou must show the interest separately in box 3.event occurs. See Exceptions on this page. If you cancel a debt

3. Nonprincipal amounts. Nonprincipal amounts includebefore an identifiable event occurs, you may choose to file Formpenalties, fines, fees, and administrative costs. For a lending1099-C for the year of cancellation. No further reporting is requiredtransaction, you are not required to report any amount other thaneven if a second identifiable event occurs on the same debt. Also,stated principal. A lending transaction occurs when a lender loansyou are not required to file an additional or corrected Form 1099-Cmoney to, or makes advances on behalf of, a borrower (includingif you receive payment on a prior year debt.revolving credit and lines of credit). For a nonlending transaction,

When Is a Debt Canceled nonprincipal amounts are included in the debt. However, untilfurther guidance is issued, no penalties will be imposed for failureA debt is canceled on the date an identifiable event occurs. Anto report these amounts in nonlending transactions.identifiable event is:

4. Foreign debtors. Until further guidance is issued, no penalty1. A discharge in bankruptcy under Title 11 of the U.S. Code forwill apply if a financial institution does not file Form 1099-C for abusiness or investment debt (see Exceptions below).debt canceled by its foreign branch or foreign office for a foreign2. A cancellation or extinguishment making the debtdebtor provided all the following apply:unenforceable in a receivership, foreclosure, or similar federal or

a. The financial institution is engaged in the active conduct of astate court proceeding.banking or similar business outside the United States.3. A cancellation or extinguishment when the statute of

b. The branch or office is a permanent place of business that islimitations for collecting the debt expires, or when the statutoryregularly maintained, occupied, and used to carry on a banking orperiod for filing a claim or beginning a deficiency judgmentsimilar financial business.proceeding expires. Expiration of the statute of limitations is an

c. The business is conducted by at least one employee of theidentifiable event only when a debtor’s affirmative statute ofbranch or office who is regularly in attendance at the place oflimitations defense is upheld in a final judgment or decision of abusiness during normal working hours.court and the appeal period has expired.

-3-Instructions for Forms 1099-A and 1099-C (2010)



d. The indebtedness is extended outside the United States by the IRS. You may use Form W-9, Request for Taxpayerthe branch or office in connection with that trade or business. Identification Number and Certification, to request the TIN.

e. The financial institution does not know or have reason to However, a debtor is not required to certify his or her TIN underknow that the debtor is a U.S. person. penalties of perjury.

5. Related parties. Generally, a creditor is not required to fileStatements to DebtorsForm 1099-C for the deemed cancellation of a debt that occurs

when the creditor acquires the debt of a related debtor, becomes If you are required to file Form 1099-C, you must provide arelated to the debtor, or transfers the debt to another creditor statement to the debtor. Furnish a copy of Form 1099-C or anrelated to the debtor. However, if the transfer to a related party by acceptable substitute statement to each debtor. In the 2010the creditor was for the purpose of avoiding the Form 1099-C General Instructions for Certain Information Returns, see:requirements, Form 1099-C is required. See section 108(e)(4). • Part M for more information about the requirement to furnish a

6. Release of a debtor. You are not required to file Form statement to the debtor, and1099-C if you release one of the debtors on a debt as long as the • Part J for specific procedures to complete Form 1099-C forremaining debtors are liable for the full unpaid amount. debtors in bankruptcy.

7. Guarantor or surety. You are not required to file FormAccount Number1099-C for a guarantor or surety. A guarantor is not a debtor for

purposes of filing Form 1099-C even if demand for payment is The account number is required if you have multiple accounts for amade to the guarantor. debtor for whom you are filing more than one Form 1099-C.

8. Seller financing. Organizations whose principal trade or Additionally, the IRS encourages you to designate an accountbusiness is the sale of non-financial goods or non-financial number for all Forms 1099-C that you file. See part L in the 2010services, and who extend credit to customers in connection with the General Instructions for Certain Information Returns.purchase of those non-financial goods and non-financial services,

Box 1. Date Canceledare not considered to have a significant trade or business of lendingmoney, with respect to the credit extended in connection with the Enter the date the debt was canceled. See When Is a Debtpurchase of those goods or services, for reporting discharge of Canceled on page 3.indebtedness on Form 1099-C. See Regulations section

Box 2. Amount of Debt Canceled1.6050P-2(c). But the reporting applies if a separate financingsubsidiary of the retailer extends the credit to the retailer’s Enter the amount of the canceled debt. See Debt Defined on pagecustomers. 3 and Exceptions on page 3. Do not include any amount the lender

receives in satisfaction of the debt by means of a settlementagreement, foreclosure sale, etc.Multiple Debtors

For debts of $10,000 or more incurred after 1994 that involve Box 3. Interest if Included in Box 2debtors who are jointly and severally liable for the debt, you must

Enter any interest you included in the canceled debt in box 2. Youreport the entire amount of the canceled debt on each debtor’sare not required to report interest in box 2. But if you do, you alsoForm 1099-C. Multiple debtors are jointly and severally liable for amust report it in box 3.debt if there is no clear and convincing evidence to the contrary. If it

can be shown that joint and several liability does not exist, a Form Box 4. Debt Description1099-C is required for each debtor for whom you canceled a debt of

Enter a description of the origin of the debt, such as student loan,$600 or more.mortgage, or credit card expenditure. Be as specific as possible. If

For debts incurred before 1995 and for debts of less than you are filing a combined Form 1099-C and 1099-A, include a$10,000 incurred after 1994, you must file Form 1099-C only for the description of the property.primary (or first-named) debtor.

Box 5. Was Borrower Personally Liable forIf you know or have reason to know that the multiple debtorswere husband and wife who were living at the same address when Repayment of the Debtthe debt was incurred, and you have no information that these Enter an “X” in the applicable box to indicate whether the borrowercircumstances have changed, you may file only one Form 1099-C. was personally liable for repayment of the debt at the time the debt

was created or, if modified, at the time of the last modification.RecordkeepingIf you are required to file Form 1099-C, you must retain a copy of Box 6. Check for Bankruptcythat form or be able to reconstruct the data for at least 4 years from Check the box if you are reporting a debt discharged in bankruptcy.the due date of the return.

Box 7. Fair Market Value (FMV) of PropertyRequesting TINsIf you are filing a combined Form 1099-C and 1099-A for aYou must make a reasonable effort to obtain the correct name and foreclosure, execution, or similar sale, enter the FMV of thetaxpayer identification number (TIN) of the person whose debt was property. Generally, the gross foreclosure bid price is considered tocanceled. You may obtain the TIN when the debt is incurred. If you be the FMV. If an abandonment or voluntary conveyance to thedo not obtain the TIN before the debt is canceled, you must request lender in lieu of foreclosure occurred, enter the appraised value ofthe debtor’s TIN. Your request must clearly notify the debtor that the property. the IRS requires the debtor to furnish its TIN and that failure to

furnish such TIN subjects the debtor to a $50 penalty imposed by

-4- Instructions for Forms 1099-A and 1099-C (2010)

Reduction of Tax Attributes Due to Discharge ofIndebtedness (and Section 1082 Basis Adjustment)

Form 982 OMB No. 1545-0046 (Rev. March 2009)

Department of the TreasuryInternal Revenue Service

© Attach this form to your income tax return.

Identifying number Name shown on return

General Information (see instructions)

1 Amount excluded is due to (check applicable box(es)): Discharge of indebtedness in a title 11 case

a

Discharge of indebtedness to the extent insolvent (not in a title 11 case)

b Discharge of qualified farm indebtedness

c

2 2 Total amount of discharged indebtedness excluded from gross income Do you elect to treat all real property described in section 1221(a)(1), relating to property held for sale to

customers in the ordinary course of a trade or business, as if it were depreciable property?

No Yes Reduction of Tax Attributes. You must attach a description of any transactions resulting in the reduction in basis under section 1017. See Regulations section 1.1017-1 for basis reduction ordering rules, and, if applicable, required partnership consent statements. (For additional information, see the instructions for Part II.) Enter amount excluded from gross income:

That you elect under section 108(b)(5) to apply first to reduce the basis (under section 1017) ofdepreciable property

5 5

Applied to reduce any net operating loss that occurred in the tax year of the discharge or carriedover to the tax year of the discharge

6 6

Applied to reduce any general business credit carryover to or from the tax year of the discharge

7 7 8

Applied to reduce any net capital loss for the tax year of the discharge including any capital losscarryovers to the tax year of the discharge

8 9

9 10a

11a

b 11b

c Other property used or held for use in a trade or business, or for the production of income

11c

Applied to reduce any foreign tax credit carryover to or from the tax year of the discharge

11

Consent of Corporation to Adjustment of Basis of Its Property Under Section 1082(a)(2)

Under section 1081(b), the corporation named above has excluded $ from its gross incomefor the tax year beginning , and ending .

Under that section, the corporation consents to have the basis of its property adjusted in accordance with the regulations prescribed under section 1082(a)(2) in effect at the time of filing its income tax return for that year. The corporation is organized under the laws of .

(State of incorporation)

Note. You must attach a description of the transactions resulting in the nonrecognition of gain under section 1081.

Form 982 (Rev. 3-2009)

For a discharge of qualified farm indebtedness, applied to reduce the basis of:

Applied to reduce the basis of nondepreciable and depreciable property if not reduced on line5. DO NOT use in the case of discharge of qualified farm indebtedness

Land used or held for use in a trade or business of farming

Part I

Part II

Part III

3

Cat. No. 17066E

AttachmentSequence No. 94

Discharge of qualified real property business indebtedness

For a discharge of qualified real property business indebtedness, applied to reduce the basis ofdepreciable real property

Depreciable property used or held for use in a trade or business, or for the production of income, ifnot reduced on line 5

4

a

4

d

Applied to reduce any minimum tax credit as of the beginning of the tax year immediately afterthe tax year of the discharge

Applied to reduce any passive activity loss and credit carryovers from the tax year of the discharge

10a

13

12

13

For Paperwork Reduction Act Notice, see page 5 of this form.

12

Discharge of qualified principal residence indebtedness

e

b Applied to reduce the basis of your principal residence. Enter amount here ONLY if line 1e ischecked

10b

Discharge of certain indebtedness of a qualified individual because of Midwestern disasters

f

General Instructions Section references are to the Internal Revenue Code unlessotherwise noted.

Generally, the amount by which you benefit from thedischarge of indebtedness is included in your gross income.However, under certain circumstances described in section108, you can exclude the amount of discharged indebtednessfrom your gross income.

Page 2 Form 982 (Rev. 3-2009)

Purpose of Form

What’s New

● The Heartland Disaster Tax Relief Act of 2008 allowsqualified individuals to exclude from gross income dischargesof certain indebtedness because of Midwestern disasters. Seethe instructions for line 1f for more information.

● The Emergency Economic Stabilization Act of 2008extended the exclusion from gross income for the dischargeof qualified principal residence indebtedness by an additional3 years. This exclusion now applies to debt discharged after2006 and before 2013.

You must file Form 982 to report the exclusion and thereduction of certain tax attributes either dollar for dollar or331⁄ 3 cents per dollar (as explained below).

How To Complete the Form IF the discharged debt you are excluding is . . .

THEN follow these steps . . .

Qualified principal residence indebtedness

1. Be sure to read the definition of qualified principal residence indebtedness in the instructions for line 1e on page4. Part or all of your debt may not qualify for the exclusion on line 1e but may qualify for one of the other exclusions. 2. Check the box on line 1e.

3. Include on line 2 the amount of discharged qualified principal residence indebtedness that is excluded fromgross income. Any amount in excess of the excluded amount may result in taxable income. See Pub. 4681, for moreinformation. If you disposed of your residence, you may also be required to recognize a gain on its disposition. Fordetails, see Pub. 523, Selling Your Home. 4. If you continue to own your residence after the discharge, enter on line 10b the smaller of (a) the amount ofqualified principal residence indebtedness included on line 2 or (b) the basis (generally, your cost plusimprovements) of your principal residence. If the discharge occurs in a title 11 case, you cannot check box 1e. You must check box 1a and

complete the form as discussed below under A nonbusiness debt. If you are insolvent (and not in a title11 case), you can elect to follow the insolvency rules by checking box 1b instead of box 1e andcompleting the form as discussed below under A nonbusiness debt.

CAUTION

A nonbusiness debt (other than qualified principalresidence indebtedness, such as a car loan or creditcard debt)

Follow these instructions if you do not have any of the tax attributes listed in Part II (other than a basis in nondepreciable property). Otherwise, follow the instructions for Any other debt below.

1. Check the box on line 1a if the discharge was made in a title 11 case (see the definition in the instructions onpage 3), the box on line 1b if the discharge occurred when you were insolvent (see the definition in the instructionsfor line 1b on page 3), or the box on line 1f if you are a qualified individual whose indebtedness was discharged byan applicable entity because of a Midwestern disaster (see the definitions in the instructions for line 1f on page 4).

2. Include on line 2 the amount of discharged nonbusiness debt that is excluded from gross income. If you wereinsolvent, do not include more than the excess of your liabilities over the fair market value of your assets. 3. Include on line 10a the smallest of (a) the basis of your nondepreciable property, (b) the amount of thenonbusiness debt included on line 2, or (c) the excess of the aggregate bases of the property and the amount ofmoney you held immediately after the discharge over your aggregate liabilities immediately after the discharge.

Any other debt

Use Part I of Form 982 to indicate why any amount received from the discharge of indebtedness should beexcluded from gross income and the amount excluded. Use Part II to report your reduction of tax attributes. The reduction must be made in the following order unless youcheck the box on line 1d for qualified real property business indebtedness or make the election on line 5 to reducebasis of depreciable property first. 1. Any net operating loss (NOL) for the tax year of the discharge (and any NOL carryover to that year) (dollar fordollar); 2. Any general business credit carryover to or from the tax year of the discharge (331⁄ 3 cents per dollar);

3. Any minimum tax credit as of the beginning of the tax year immediately after the tax year of the discharge (331⁄ 3 cents per dollar); 4. Any net capital loss for the tax year of the discharge (and any capital loss carryover to that tax year) (dollar fordollar); 5. The basis of property (dollar for dollar);

6. Any passive activity loss (dollar for dollar) and credit (331⁄ 3 cents per dollar) carryovers from the tax year of thedischarge; and 7. Any foreign tax credit carryover to or from the tax year of the discharge (331⁄ 3 cents per dollar).

Use Part III to exclude from gross income under section 1081(b) any amounts of income attributable to the transferof property described in that section.

● The American Recovery and Reinvestment Act of 2009allows certain businesses to elect to defer and include ratablyover five tax years any income from the discharge of business

debt arising from the reacquisition of certain types of businessdebt repurchased in 2009 and 2010. If you make this election,you cannot exclude for the taxable year of the election or anysubsequent taxable year the income from the discharge ofsuch indebtedness based on a title 11 bankruptcy case,insolvency, qualified farm indebtedness, or qualified realproperty business indebtedness. For more details, includinghow to make the election, see section 108(i).

Form 982 (Rev. 3-2009)

Qualified acquisition indebtedness is (a) debt incurred orassumed to acquire, construct, reconstruct, or substantiallyimprove real property that is secured by such debt; and (b)debt resulting from the refinancing of qualified acquisitionindebtedness, to the extent the amount of such debt doesnot exceed the amount of debt being refinanced. You cannot exclude more than the excess of theoutstanding principal amount of the debt (immediately beforethe discharge) over the net FMV (as of that time) of theproperty securing the debt, reduced by the outstandingprincipal amount of other qualified real property businessindebtedness secured by that property (as of that time). Theamount excluded is further limited to the aggregate adjustedbasis (as of the first day of the next tax year, or if earlier, thedate of disposition) of depreciable real property (determined

Line 1d

Qualified real property business indebtedness isindebtedness (other than qualified farm indebtedness) that:(a) is incurred or assumed in connection with real propertyused in a trade or business; (b) is secured by that realproperty; and (c) with respect to which you have made anelection under this provision. This provision does not apply toa corporation (other than an S corporation). Indebtedness incurred or assumed after 1992 is notqualified real property business indebtedness unless it iseither: (a) debt incurred to refinance qualified real propertybusiness indebtedness incurred or assumed before 1993 (butonly to the extent the amount of such debt does not exceedthe amount of debt being refinanced) or (b) qualifiedacquisition indebtedness.

Qualified farm indebtedness is the amount of indebtednessincurred directly in connection with the trade or business offarming. In addition, 50% or more of your aggregate grossreceipts for the 3 tax years preceding the tax year in which thedischarge of such indebtedness occurs must be from thetrade or business of farming. For more information, seesections 108(g) and 1017(b)(4). The discharge must have been made by a qualified person.Generally, a qualified person is an individual, organization,etc., who is actively and regularly engaged in the business oflending money. This person cannot be related to you, be theperson from whom you acquired the property, or be a personwho receives a fee with respect to your investment in theproperty. Also, a qualified person includes any federal, state,or local government or agency or instrumentality thereof. If you checked line 1c and did not make the election on line5, the debt discharge amount will be applied to reduce the taxattributes in the order listed on lines 6 through 9. Anyremaining amount will be applied to reduce the tax attributesin the order listed on lines 11a through 13. You cannot exclude more than the total of your: (a) taxattributes (determined under section 108(g)(3)(B)); and (b)basis of property used or held for use in a trade or business orfor the production of income. Any excess is included inincome.

Title 11 Case

File Form 982 with your federal income tax return for a year adischarge of indebtedness is excluded from your incomeunder section 108(a). The election to reduce the basis of depreciable propertyunder section 108(b)(5) and the election made on line 1d ofPart I regarding the discharge of qualified real propertybusiness indebtedness must be made on a timely-filed return(including extensions) and can be revoked only with theconsent of the IRS.

Specific Instructions Part I

Discharge of Indebtedness

Definitions

When To File

If you timely filed your tax return without making either ofthese elections, you can still make either election by filing anamended return within 6 months of the due date of the return(excluding extensions). Write “Filed pursuant to section301.9100-2” on the amended return and file it at the sameplace you filed the original return.

Line 1b

Check the box on line 1b if the discharge of indebtednessoccurred while you were insolvent. You were insolvent to theextent that your liabilities exceeded the fair market value(FMV) of your assets immediately before the discharge. Fordetails and a worksheet to help calculate insolvency, seePub. 4681. Example. You were released from your obligation to payyour credit card debt in the amount of $5,000. The FMV ofyour total assets immediately before the discharge was$7,000 and your liabilities were $10,000. You were insolventto the extent of $3,000 ($10,000 of total liabilities minus$7,000 of total assets). Check the box on line 1b and include$3,000 on line 2.

Line 1c

Certain individuals may need to complete only afew lines on Form 982. For example, if you arecompleting this form because of a discharge ofindebtedness on a personal loan (such as a car loan

or credit card debt) or a loan for the purchase of your principalresidence, follow the chart on page 2 to see which lines youneed to complete. Also, see Pub. 4681, Canceled Debts,Foreclosures, Repossessions, and Abandonments, foradditional information including many examples andcompleted forms.

TIP

If you made an election under section 108(i) todefer income from the discharge of business debtarising from the reacquisition of a debt instrument,you cannot exclude on lines 1a through 1d the

income from the discharge of such indebtedness for thetaxable year of the election or any subsequent taxable year.

CAUTION

A title 11 case is a case under title 11 of the United StatesCode (relating to bankruptcy), but only if you are under thejurisdiction of the court in the case and the discharge ofindebtedness is granted by the court or is under a planapproved by the court.

The term discharge of indebtedness conveys forgiveness of,or release from, an obligation to repay.

The insolvency exclusion does not apply to any dischargethat occurs in a title 11 case. It also does not apply to adischarge of qualified principal residence indebtedness (seethe instructions for line 1e on page 4) unless you elect tohave the insolvency exclusion apply instead of the exclusionfor qualified principal residence indebtedness.

Check this box if the income you exclude is from thedischarge of qualified farm indebtedness. The exclusionrelating to qualified farm indebtedness does not apply to adischarge that occurs in a title 11 case or to the extent youwere insolvent.

If you check this box, the discharge of qualified real propertybusiness indebtedness is applied to reduce the basis ofdepreciable real property on line 4. The exclusion relating toqualified real property business indebtedness does not applyto a discharge that occurs in a title 11 case or to the extentyou were insolvent.

Form 982 (Rev. 3-2009)

See section 382(l)(5) for a special rule regarding areduction of a corporation’s tax attributes after certainownership changes. Line 3

Check this box, if the income you exclude is nonbusinessdebt that is discharged by an applicable entity and you are aqualified individual. This exclusion only applies to dischargesmade on or after the applicable disaster date and before2010, and does not apply to any indebtedness secured byreal property located outside of the Midwestern disaster area.Any amount excluded from gross income must be used toreduce certain tax attributes as explained earlier under HowTo Complete the Form.

Line 1e

Principal residence. Your principal residence is the homewhere you ordinarily live most of the time. You can have onlyone principal residence at any one time. Qualified principal residence indebtedness. Thisindebtedness is a mortgage you took out to buy, build, orsubstantially improve your principal residence. It also must besecured by your principal residence. If the amount of youroriginal mortgage is more than the cost of your principalresidence plus the cost of any substantial improvements, onlythe debt that is not more than the cost of your principalresidence plus improvements is qualified principal residenceindebtedness. Any debt secured by your principal residencethat you use to refinance qualified principal residenceindebtedness is treated as qualified principal residenceindebtedness, but only up to the amount of the old mortgageprincipal just before the refinancing. Any additional debt youincurred to substantially improve your principal residence isalso treated as qualified principal residence indebtedness. Amount eligible for the exclusion. The exclusion applies onlyto debt discharged after 2006 and before 2013. The maximumamount you can treat as qualified principal residenceindebtedness is $2 million ($1 million if married filingseparately). You cannot exclude from gross income dischargeof qualified principal residence indebtedness if the dischargewas for services performed for the lender or on account of anyother factor not directly related to a decline in the value ofyour residence or to your financial condition. Ordering rule. If only a part of a loan is qualified principalresidence indebtedness, the exclusion applies only to theextent the amount discharged exceeds the amount of the loan(immediately before the discharge) that is not qualifiedprincipal residence indebtedness. For example, assume yourprincipal residence is secured by a debt of $1 million, of which$800,000 is qualified principal residence indebtedness. If yourresidence is sold for $700,000 and $300,000 of debt isdischarged, only $100,000 of the debt discharged can beexcluded (the $300,000 that was discharged minus the$200,000 of nonqualified debt). The remaining $200,000 ofnonqualified debt may qualify in whole or in part for one of theother exclusions, such as the insolvency exclusion.

Qualified individual. To be a qualified individual, you must bean individual whose principal residence on the applicabledisaster date, was located in:

● The Midwestern disaster area as listed in Table 1 of Pub.4492-B, Information for Affected Taxpayers in theMidwestern Disaster Areas, or ● The area listed in Table 2 of Pub. 4492-B and you sufferedan economic loss because of a Midwestern disaster. Applicable entity. An applicable entity includes:

● A financial institution described in section 581 or 591(a)(such as a domestic bank, trust company, building and loanor savings and loan association). ● A credit union.

● A federal government agency including a department, anagency, a court or court administrative office, or aninstrumentality in the executive, judicial, or legislative branchof the government, including government corporations. ● Any of the following, its successor, or subunit of one of thefollowing: a. Federal Deposit Insurance Corporation,

b. Resolution Trust Corporation, c. National Credit Union Administration, d. Any military department, e. U.S. Postal Service, or f. Postal Rate Commission. ● Certain subsidiaries of a financial institution or credit union.

● Any organization whose significant trade or business is thelending of money, such as a finance company or credit cardcompany (whether or not affiliated with a financial institution).

Applicable disaster date. This is the date on which thesevere storms, tornadoes, or flooding occurred in theMidwestern disaster areas.

Line 2

An entity that is required to file Form 1099-C,Cancellation of Debt, is an applicable entity.

TIP

Midwestern disaster areas. A Midwestern disaster area is anarea for which a major disaster was declared by the Presidentduring the period beginning on May 20, 2008, and ending onJuly 31, 2008, in the state of Arkansas, Illinois, Indiana, Iowa,Kansas, Michigan, Minnesota, Missouri, Nebraska, orWisconsin as a result of severe storms, tornadoes or floodingthat occurred on the applicable disaster date. See Tables 1and 2 in Pub. 4492-B for a list of the counties included in theMidwestern disaster areas.

Check this box if the income you exclude is from dischargeof qualified principal residence indebtedness. Also, be sureyou complete line 2 (and line 10b if you continue to own theresidence after discharge). However, if the discharge occursin a title 11 case, you must check the box on line 1a and notthis box. If you are insolvent (and not in a title 11 case), youcan elect to follow the insolvency rules by checking box 1binstead of checking this box. For more information, see Pub.4681.

Line 1f

Enter the total amount excluded from your gross income dueto discharge of indebtedness under section 108. If youchecked any box on lines 1b through 1e, do not enter morethan the limit explained in the instructions for those lines. Ifyou checked line 1a, 1b, 1c, or 1f, this amount will notnecessarily equal the total reductions on lines 5 through 13(excluding line 10b) because the debt discharge amount mayexceed the total tax attributes. If you checked line 1e, thisamount will not necessarily equal the total basis reduction online 10b (which is required only if you continue to own theresidence after the discharge).

You can elect under section 1017(b)(3)(E) to treat all realproperty held primarily for sale to customers in the ordinarycourse of a trade or business as if it were depreciableproperty. This election does not apply to the discharge ofqualified real property business indebtedness. To make theelection, check the “Yes” box.

after any reductions under sections 108(b) and (g)) you heldimmediately before the discharge (other than propertyacquired in contemplation of the discharge). Any excess isincluded in income.

Form 982 (Rev. 3-2009)

Part III Adjustment to Basis

If the corporation desires to have the basis of its propertyadjusted in a manner different from the general rule, it mustattach a request for variation from the general rule. Therequest must show the precise method used and theallocation of amounts. Consent to the request for variation from the general rulewill be effective only if it is incorporated in a closingagreement entered into by the corporation and theCommissioner of Internal Revenue under the rules of section7121. If no agreement is entered into, then the general rule willapply in determining the basis of the corporation’s property.

If you have comments concerning the accuracy of thesetime estimates or suggestions for making this form simpler,we would be happy to hear from you. See the instructions forthe tax return with which this form is filed.

The time needed to complete and file this form will varydepending on individual circumstances. The estimatedburden for individual taxpayers filing this form is approvedunder OMB control number 1545-0074 and is included in theestimates shown in the instructions for their individualincome tax return. The estimated burden for all othertaxpayers who file this form is shown as follows:Recordkeeping, 5 hr., 58 min.; Learning about the law orthe form, 2 hr., 17 min.; Preparing and sending the formto the IRS, 2 hr., 28 min.

Paperwork Reduction Act Notice. We ask for theinformation on this form to carry out the Internal Revenuelaws of the United States. You are required to give us theinformation. We need it to ensure that you are complyingwith these laws and to allow us to figure and collect the rightamount of tax. You are not required to provide the information requestedon a form that is subject to the Paperwork Reduction Actunless the form displays a valid OMB control number. Booksor records relating to a form or its instructions must beretained as long as their contents may become material inthe administration of any Internal Revenue law. Generally, taxreturns and return information are confidential, as required bysection 6103.

● The part of line 2 that is attributable to the exclusion ofqualified principal residence indebtedness, or ● The basis of your principal residence.

Basis Reduction

Part II

Line 10a

If you have a general business credit carryover to or from thetax year of the discharge, you must reduce that carryover by331⁄ 3 cents for each dollar excluded from gross income. SeeForm 3800, General Business Credit, for more details on thegeneral business credit, including rules for figuring anycarryforward or carryback.

Line 10b

Line 7

In the case of a title 11 case or insolvency (except when anelection under section 108(b)(5) is made), the reduction inbasis is limited to the aggregate of the basis of your propertyimmediately after the discharge over the aggregate of yourliabilities immediately after the discharge.

If box 1e is checked and you continue to own the residenceafter discharge, enter the smaller of:

Unless it specifically states otherwise, the corporation, byfiling this form, agrees to apply the general rule for adjustingthe basis of property (as described in Regulations section1.1082-3(b)).

If you check any of the boxes on lines 1a through 1c and 1f,you can elect, by completing line 5, to apply all or a part of thedebt discharge amount to first reduce the basis of depreciableproperty (including property you elected on line 3 to treat asdepreciable property). Any balance of the debt dischargeamount will then be applied to reduce the tax attributes in theorder listed on lines 6 through 13 (excluding line 10b). Youmust attach a statement describing the transactions thatresulted in the reduction in basis under section 1017 andidentifying the property for which you reduced the basis. If youdo not make the election on line 5, complete lines 6 through13 (excluding line 10b) to reduce your attributes. See section1017(b)(2) and (c) for limitations of reductions in basis on line 10a.

MY LUXURY HOMES OF LAS VEGAS - THE MORTGAGE FORGIVENESS DEBT RELIEF ACT

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