My husband and I own our home and, because of financial hardship this past year, were unable to pay the mortgage for a while. Our 2nd mortgage company settled with us for 15% of the loan value and forgave the rest of the loan. We still live in the same residence and still pay the 1st mortgage.

We received a 1099-C from the 2nd mortgage company, showing the amount of the difference between what we originally owed on the loan and the settlement amount as "income".

I'm trying to fill out Form 982, but don't know whether to check box 1b (insolvency...which we were) or 1e (discharge of principal residence indebtedness) or both.

Also, are we required to write that same amount in Part II (Reduction of Tax Attributes)? If so, on which line should we write it?

Thank you.