Results 1 to 9 of 9
  1. #1
    Join Date
    Nov 2017
    Posts
    4

    Default Calculating Insolvency for Cancelled Student Loan Debt, IRS Form Form 982

    I have some questions about claiming insolvency when it comes to cancellation of debt for student loans. I'm about 19 years away from getting my loans forgiven, but by the time they are forgiven they will amount to about $170,000.

    My questions are:

    1) If my husband has a Roth IRA and other brokerage investment accounts in his name only (I am merely the beneficiary), do I have to declare those as MY assets on IRS Form 982?

    2) If I have a foreign pension in the UK, do I have to list that on Form 982?

    3) We own a house in the US; in Minnesota, specifically. If I execute a quit claim deed giving my interest in our property to my husband a few years before the cancellation of debt, is this enough to fully eliminate my ownership interest in the house for purposes of filling our the Form 982? Or because Minnesota is an equitable distribution state, does this mean I would still have an ownership interest in the property by virtue or our being married even if I do execute a quitclaim deed to my husband?

    Thank you in advance for any insight you have to offer!

  2. #2
    Join Date
    Oct 2006
    Posts
    15,988

    Default Re: Form 982: Calculating Insolvency for Cancelled Student Loan Debt

    Quote Quoting UK_Yankee
    View Post
    I have some questions about claiming insolvency when it comes to cancellation of debt for student loans. I'm about 19 years away from getting my loans forgiven, but by the time they are forgiven they will amount to about $170,000.

    My questions are:

    1) If my husband has a Roth IRA and other brokerage investment accounts in his name only (I am merely the beneficiary), do I have to declare those as MY assets on IRS Form 982?

    2) If I have a foreign pension in the UK, do I have to list that on Form 982?

    3) We own a house in the US; in Minnesota, specifically. If I execute a quit claim deed giving my interest in our property to my husband a few years before the cancellation of debt, is this enough to fully eliminate my ownership interest in the house for purposes of filling our the Form 982? Or because Minnesota is an equitable distribution state, does this mean I would still have an ownership interest in the property by virtue or our being married even if I do execute a quitclaim deed to my husband?

    Thank you in advance for any insight you have to offer!
    I think that you might be a little confused as to how form 982 and the insolvency exclusion works. Read through the items in the attached link (particularly the instructions for form 982) and if you still have questions come back.

    https://www.irs.gov/newsroom/what-if-i-am-insolvent

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

    https://www.irs.gov/newsroom/what-if...bt-is-forgiven

  3. #3
    Join Date
    Nov 2017
    Posts
    4

    Default Re: Form 982: Calculating Insolvency for Cancelled Student Loan Debt

    I'm not sure what I'm missing here. I'm on the PAYE repayment plan and my remaining loan balance will be forgiven after 20 years of payments. I will be issued a 1099-C for the amount that is forgiven, for which I am hoping to meet the insolvency exception.

    https://cpawilmingtonnc.org/cancelle...-instructions/

  4. #4
    Join Date
    Oct 2006
    Posts
    15,988

    Default Re: Form 982: Calculating Insolvency for Cancelled Student Loan Debt

    I understand that. I am recommending that you read through the items that I linked for you to get a greater understanding of how everything works.

  5. #5
    Join Date
    Nov 2017
    Posts
    4

    Default Re: Form 982: Calculating Insolvency for Cancelled Student Loan Debt

    I read through all of the items you posted, thank you for the links. I understand that I would select item 1b on Form 982, that the amount of debt cancelled ($170,000) is excluded from my taxable income due to my insolvency.

    My questions in my first post relate specifically to the potential assets I would document on the insolvency worksheet. I need to know if I would include those as assets or not, due to the circumstances described.

  6. #6
    Join Date
    Oct 2006
    Posts
    15,988

    Default Re: Form 982: Calculating Insolvency for Cancelled Student Loan Debt

    Quote Quoting UK_Yankee
    View Post
    I read through all of the items you posted, thank you for the links. I understand that I would select item 1b on Form 982, that the amount of debt cancelled ($170,000) is excluded from my taxable income due to my insolvency.

    My questions in my first post relate specifically to the potential assets I would document on the insolvency worksheet. I need to know if I would include those as assets or not, due to the circumstances described.
    If you are married, I do not think that you can avoid counting marital assets (assets acquired during the marriage) as part of the assets for the insolvency calculation, by simply signing things over to your husband.

    However, you are talking about something that is 20 years away from now, and there is no telling what tax laws will be in place at that time, regarding cancelled debt.

  7. #7
    Join Date
    Oct 2014
    Posts
    7,714

    Default Re: Form 982: Calculating Insolvency for Cancelled Student Loan Debt

    The basic rule is that you include in computation those assets in which you have an ownership interest (and if you share ownership you include only your share of the asset). Note that ownership interests and marital interests are not the same thing. The basic test is whether the creditor could reach that asset if it were not exempt from attachment under some federal or state law (e.g. homestead exemption, etc). In equitable distribution states a marital interest is generally not an ownership interest that a creditor may attach. Community property, on the other hand is not just a marital interest, it is an actual property interest that creditors can attach to collect he debt. On the debt side, you include all those debts for which you are personally liable; again your marital share of a debt that is solely your husband’s debt would not be included since you are generally not personally liable for that but your community debt interest would be included as you are personally liable for your share of community debts. Note that even if you live in a noncommunity property state it is possible in some circumstances that an asset you or your spouse own is nevertheless is treated as community property; similarly it is possible that one or more debts may be community debt. So the history of the assets and where you have lived will matter.

    With that background, the general answers to your questions are:


    Quote Quoting UK_Yankee
    View Post
    My questions are:

    1) If my husband has a Roth IRA and other brokerage investment accounts in his name only (I am merely the beneficiary), do I have to declare those as MY assets on IRS Form 982?
    Assuming that at the time of the discharge you have no community property or other ownership interest in those assets they would not be included in your insolvency computation.

    Quote Quoting UK_Yankee
    View Post
    2) If I have a foreign pension in the UK, do I have to list that on Form 982?
    Yes, that is an asset of yours that you must include in the insolvency computation. While pensions generally are often exempt from attachment under federal and state laws, the fact that a debt is exempt from attachment does not exclude it from an asset for computing insolvency under IRC § 108. “We hold that the word ‘assets’ as used in the definition of the term ‘insolvent’ in section 108(d)(3) includes assets exempt from the claims of creditors under applicable State law.” Carlson v. Commissioner, 116 T.C. 87, 105 (2001).

    Quote Quoting UK_Yankee
    View Post
    3) We own a house in the US; in Minnesota, specifically. If I execute a quit claim deed giving my interest in our property to my husband a few years before the cancellation of debt, is this enough to fully eliminate my ownership interest in the house for purposes of filling our the Form 982? Or because Minnesota is an equitable distribution state, does this mean I would still have an ownership interest in the property by virtue or our being married even if I do execute a quitclaim deed to my husband?
    Doing that sort of gratuitous transfer to your husband may be regarded as a fraudulent conveyance. This term does not refer to criminal fraud, but rather is a term for transactions that are meant to defeat creditors. Such transactions include gifts of property to put them beyond the reach of attachment by creditors. If the transfer is a fraudulent conveyance the remedy for the creditor is to seek to have the asset transfer removed so that the creditor may pursue attachment. The case law does not directly address this, but in my view if it is a fraudulent conveyance it would be subject to inclusion in the computation of insolvency using the baseline rule that assets that creditors could reach (but for a law exempting them from attachment) are includeable in the insolvency computation.

    The huge caveat here is that 19 years is a long time away. A lot can happen in that time; you might see a large increase in income such that you pay off the student loans in full or other significant change in your financial condition such that no discharge occurs. The tax law may change before then. So, what is true today may not be 19 years from now.

  8. #8
    Join Date
    Nov 2017
    Posts
    4

    Default Re: Form 982: Calculating Insolvency for Cancelled Student Loan Debt

    Thank you so much, TaxingMatters, for your detailed reply. It's extremely helpful. Hopefully the laws will change in my favor over the next 20 years, or my husband and I may have to temporarily divorce just to separate our assets legally. The house is the one that would be the determining factor in calculating insolvency.

  9. #9

    Default Re: Form 982: Calculating Insolvency for Cancelled Student Loan Debt

    Strongly advise against committing fraud.

    1. Sponsored Links
       

Similar Threads

  1. Replies: 5
    Last Post: 02-28-2017, 03:06 AM
  2. Federal Taxes: Permissible Planning for a Form 982 Insolvency in Response to a 1099-C
    By BinaryMan in forum Tax Law
    Replies: 10
    Last Post: 12-28-2016, 11:22 AM
  3. Replies: 1
    Last Post: 03-09-2015, 12:08 AM
  4. Federal Taxes: Is SSI Income Reported on Insolvency Form 982
    By Perther in forum Tax Law
    Replies: 4
    Last Post: 06-27-2011, 07:46 PM
  5. F Visas: F1 Visa Student Working Illegally, W2 Form
    By need9help in forum Visas for Business, Tourism and Family
    Replies: 1
    Last Post: 04-09-2009, 05:08 AM
 
 
Sponsored Links

Legal Help, Information and Resources